Assessment fees are payments the HOA collects from homeowners in order to cover expenses that the association is responsible for. Occasionally, the HOA may need to increase assessments. Before we get into that discussion, let’s start by understanding the basic concept of the HOA annual budget and why assessments are important.
Why Assessments are Necessary
An HOA is run as a non-profit corporation, which is generally staffed by a board of directors made up of individual homeowner volunteers. The HOA board is essentially responsible for coordination and payment of the operation, maintenance, repair, and replacement expenses associated with all common areas in the community. These expenses vary from community to community, but may include items such as pool maintenance, landscaping, and utility bills for a clubhouse or gym. The board adopts an annual budget which includes the cost of all ongoing maintenance and operational expenses, plus an additional amount set aside in a reserve fund. This amount is divided between each homeowner in the community, which is then paid to the HOA periodically as HOA dues, or assessments.
Why Assessments May Increase
Because of inflation, the HOA budget generally increases each year, which results in increased assessments. In general, the CC&Rs contain limitations on how much the HOA can increase assessments. For instance, many associations limit assessment increases to 2% per year, or to a maximum dollar amount per year. Though the HOA can generally raise assessments as often as needed in order to meet the annual budget, there are exceptions, and there are always rules that must be followed and conditions that must be met.
It is important to remember that the HOA board is made up of members of the community. They have the same interest in creating a beautiful and safe community that other homeowners have. Board members have to pay association dues just like everyone else, and are working to make sure that the funds are used effectively and efficiently. Therefore, it is reasonable to assume that the board will not vote to increase assessments unless it has been well researched, planned, and deemed absolutely necessary.
Special Assessments
Occasionally, urgent needs will arise that do not fall under the planned budget. In this case, the HOA may vote to collect a special assessment from each owner in order to fund the expense. Again, keep in mind that the HOA board is made up of homeowners – no board wants to levy a special assessment! However, there are times when the board is left with no choice. The levying of special assessments is generally regulated by the HOAs governing documents. The CC&Rs will dictate when and how special assessments can be implemented. The board should always consult with their management company and accountant to make sure that they are making wise financial decisions and getting the most out of both annual and special assessments
The HOA relies on all members paying their assessments in full (and on time) in order to have enough money to fund the various projects and amenities that the association in responsible for. If even one member of the association doesn’t pay their dues, the budget falls short. If multiple members neglect their assessments, money may fall into such short supply it forces the association to levy special assessments to make up the difference; this is immensely unfair for the majority of the members to have to make up for the neglect of a few members.
Each homeowner should know what they are agreeing to when they purchase a home in an HOA community. If the assessment schedule is not acceptable for one reason or another, the buyer should consider looking elsewhere. Because HOA assessments are vital to the overall health of the association, members are responsible for paying assessments in a timely manner.
