A lot goes into running a homeowners’ community, and most of it incurs expenses. That’s usually why its residents are expected to pay regular HOA fees. But what exactly do they cover?
What are HOA Fees?
Also sometimes referred to as HOA dues, these fees are payments that all association members must make regularly. Depending on the HOA, these fees can be paid monthly or quarterly. In some cases, residents may even pay them annually, depending on their HOA’s governing documents.
The money helps fund shared expenses that benefit the entire community. These expenses usually include operational costs, insurance, maintenance, and utilities. It also includes contributions to the HOA’s reserve funds.
There’s no set amount of regular HOA fees for all associations. The calculation should be based on the type of community and the projected expenses.
What Do HOA Fees Cover in General?
You can usually find out what HOA dues pay for by checking the association’s governing documents. Here are some of the expenses your regular payments cover:
Common Area Maintenance
HOA fees are budgeted to cover common area maintenance. After all, while these amenities are taken care of by the HOA, everyone in the neighborhood is generally allowed to utilize them. These common amenities may include anything from clubhouses to roads.
Regular upkeep of these common areas helps keep the neighborhood clean and safe. It also helps protect property values by ensuring the neighborhood looks well-kept.
Landscaping and Groundskeeping
HOA fees also cover landscaping and groundskeeping around the community. It covers any expenses for common-area lawn care, as well as upkeep of the trees and plants around the neighborhood.
Similar to common area maintenance, having proper landscaping helps keep property values. It makes the area look clean and not neglected.
Insurance Coverage
HOA associations always need insurance, including property insurance and general liability. The association pays for this through HOA fees.
Having insurance for the association is a must. It provides protection from any claims and possible losses. However, while they pay dues that cover insurance, residents should note that these dues may not always cover private properties or units.
Professional Management
Since associations are usually run by volunteer HOA board members, the many responsibilities that need to be fulfilled can get overwhelming. For this, many associations would hire professional management to ensure everything runs smoothly. Payment for this service usually comes from funds allocated in the budget.
Logistic and Administrative Costs
HOA fees also cover all basic logistical and administrative costs. These may include services such as legal support and accounting. They may also cover all the supplies the HOA needs to operate, such as postage and printing costs.
What do HOA Fees Cover for Condos?
Condo fees are generally higher than in single-family communities. This is usually because condos have more shared elements to maintain than HOA-governed neighborhoods do.
Some of the expenses covered by condo fees include the following:
Exterior Building Maintenance
Due to the nature of this property, many residents share a single condominium building. Because of this, they all need to pitch in for the maintenance of that structure’s exterior.
Condo fees usually cover the maintenance of shared elements such as the building’s paintwork, roofing, siding, and other shared elements. It also covers the upkeep of common outdoor amenities such as public balconies and walkways.
Interior Common Area Upkeep
Of course, condo fees also cover the maintenance of shared spaces inside the building. It pays to ensure hallways, stairs, recreational rooms, and elevators are safe to use and up to code.
Part of the upkeep may include paying for cleaning and repairs.
Building Systems
Condo units usually share major utility systems in the building, including anything from electrical systems to plumbing. Condo fees generally cover the maintenance and use of these systems, along with any inspections or repairs that they may need.
Shared Services
HOA fees in condominiums also cover the cost of shared services. These services include those from contractors, such as trash collection and pest control. However, it also covers in-house services, such as janitorial work and front desk staff.
HOA Fees and Reserve Funds
Part of the money gathered from HOA fees also generally goes to the community’s reserve funds. This fund is in place as preparation for future major repairs and replacements. It helps the HOA board plan for years to come, helping minimize the need for special assessments
Apart from being prepared, having a strong reserve fund also boosts property values. It makes the community more attractive to potential buyers by showing how prepared your HOA is for long-term maintenance.
What Happens When Reserves are Too Low?
The amount of reserve funds an association needs will depend on a reserve study. Without it, your board may fail to have a decent fund plan. In turn, this may lead to having an underfunded reserve fund.
Having reserves that are too low leaves your HOA vulnerable. It would delay major structural repairs until you have raised enough funds to pay for them. If you don’t have sufficient reserves, your association will need to impose sudden special assessments, increasing the financial burden on homeowners.
How Much HOA Fee is Too Much?
Similar to setting how much HOA dues a resident will have to pay, there’s also no fixed amount that would make it too high. Instead, it depends on the same factors that would determine the fees in the first place.
However, there may be some signs that indicate whether your board is overestimating the funds your HOA needs. HOA fees going over $400 to $500, or condo fees over $600 to $700, without any substantial services or amenities to justify them, may be a bad sign. Another red flag is the 1% rule, in which annual fees exceed 1% of the property’s value or regular dues exceed 25% to 30% of the mortgage payments.
However, higher fees can be justified if utilities and expenses warrant them. If residents feel the HOA fees are too high, make sure to keep records and be transparent about how they are used.
What an HOA Fee Doesn’t Cover
While HOA fees generally cover most of a community’s operational expenses, they don’t cover every cost. Usually, HOA fees cover only expenses related to community-shared assets. Owners remain responsible for costs that apply only to their private unit or property.
Some expenses HOA fees don’t cover include:
- Private property taxes
- Personal insurance
- Repairs within private properties
- Utilities not covered by HOA dues
- Personal landscaping
- Homeowner-caused damages
Residents should avoid assuming that the association would cover an expense just because it mildly affects their property. As a best practice, homeowners should review their governing documents to see which expenses the HOA is generally responsible for.
Funding for Shared Expenses
HOA fees cover many aspects of community living. Most of those costs are expenses covering shared spaces and amenities that everyone can benefit from. However, to ensure the association’s finances remain sound, boards need to forecast expenses accurately and budget accordingly. While funding is key, proper budgeting would make it easier for the community to reach its shared goals.
Creative Management Company offers professional community management for HOAs and condo communities in the Greater Houston area. Call us today at 713-772-4420 or contact us online to learn more!
