There are many considerations when establishing HOA fees for your community association. You need to charge a fee that will keep your HOA competitive with other HOAs in the area, while also covering all known and potential costs, and setting some money aside for future projects. Learning how to communicate and collect charges from members is also essential for managing a successful community.
HOA fees: what they need to cover
Having a sound budget for your HOA is a critical part of a successful community. It’s also essential for facilitating the management of your HOA’s property. Your budget will enable you to:
- Fund annual maintenance
- Save for expensive projects
- Maintain your property’s value and aesthetic, which in turn attracts new homeowners
- Keep existing residents happy and satisfied
Some of the most important items to consider as a part of your annual HOA fees include:
- Annual maintenance and repairs
- Upkeep of facilities such as the clubhouse
- Future improvements and expansions
- Management fees
- Water and utilities
- Staffing costs
- Miscellaneous amenities
- HOA Insurance
- Unexpected expenses
When setting fees, it's important to consider upcoming projects and upgrades for a period of three to five years so you can budget and save for large expenditures.
How much should you charge in HOA Fees?
When deciding how much to charge for HOA fees, consider the following:
- The budgetary needs of the HOA. The operating expenses of a community are one major factor in determining HOA fees. The more an HOA offers, the higher a community’s HOA fees. What will it take to pay for the projected expenses of the coming year? How much do you want to save each year to accumulate a reserve to cover unexpected expenses and future projects?
- The competitive environment. What are similar communities in your area charging? Do your research. Many listing services such as Zillow, Redfin and Realtor.com include the HOA fees in the property listing.
- The economy. If the economy is declining and residents are out of work, it’s probably not a great time to significantly hike fees. On the other hand, if the economy is booming and residents are requesting expansion of clubhouse and pool amenities, seize the moment!
- The emergency fund. Every HOA should have an emergency fund they can tap for unexpected expenses, like unexpected tree removal or mailbox replacement. When HOA fees are too low, it increases the chance of needing to charge special assessments to cover unexpected expenses not considered in the budget.
- Future projects/expansions/upgrades. Think ahead and review your community maintenance schedule. When will expensive pool equipment need to be replaced? When will the tennis courts need to be resurfaced? When will the clubhouse need a new roof? By setting rates with the future in mind, you can build reserves to allow for property investments in the future.
Avoid conflicts - be transparent
Transparency with homeowners about changes in budgeting or HOA fees are important towards retaining and gaining homeowners in the association. It’s also important to solicit regular feedback from community members so they feel heard and so you can be sure that the HOAs actions align with the perceived needs of the community.
It’s vital to keep members up to date on the finances of the HOA. This includes both HOA fees, budgeting changes and costs incurred for improvements and amenities. Plan to send members monthly updates via email, or post updates to the community member portal or social media account. Consider hosting a monthly meet-up where community members can get together and enjoy each other’s company while also being updated on HOA actions and expenditures. This will also help with avoiding the most common HOA/COA problems.
Be mindful that different people prefer different communication channels. Your older residents may prefer in-person contact, while young professionals and busy parents may prefer to get their updates through social media.
How to collect the HOA fees
There are a few ways to go about collecting fees from members who are late payers. In most cases a friendly, casual reminder via email, phone or text will suffice. If the member is not responsive, you can follow up with more formal written notices and assess late fees.
In the worst-case scenario, you may need to follow the legal protocols in your city and state. Those might include denying the member access to amenities and/or obtaining a lien against the homeowners property or pursuing other legal actions.
Insurance Best Practices
When shopping for HOA insurance, and procuring other services for the community, board members must be good stewards of the HOA’s money. This includes obtaining quotes from multiple sources, and looking for the best possible insurance rate for your HOA.
It's important to remember that managing HOA financials and collecting HOA fees are challenging tasks. In many cases, these tasks are being carried out by community volunteers without previous experience or training. Be sure to protect all board members with Directors and Officers (D&O) insurance
If board members do not have D&O insurance, they are at risk of being personally sued for mistakes made while serving as a board member. You do not want to expose your well-meaning neighbors to this scary possibility.
If volunteers know that the HOA provides D&O insurance for its volunteer board members and takes every step to carefully follow fiduciary best practices, they will be much more willing to volunteer their time.