Living in a homeowners association comes with benefits, but it also comes with financial obligations. Here, we discuss what is an HOA fee and everything else you need to know about it.
What Is an HOA Fee?
Potential homeowners have to do a lot of research before they buy a home. When that home is located within a homeowners association, there is twice as much research to do. You need to check that the association is in good financial condition, review its governing documents, and familiarize yourself with what your obligations will be once you become a member. After all, membership is normally automatic in HOAs once you buy the home.
One of the financial obligations you have to fulfill is paying HOA fees. What are HOA fees? Otherwise known as HOA dues, these are the fees that HOAs collect from homeowners on a regular basis. The fees are used to pay for the various expenses associated with the maintenance and upkeep of the community. Fees are collected monthly, quarterly, and annually, depending on the association’s rules.
While HOA fees can vary greatly from one association to another, they average about $200 to $300 per month in the United States. Keep in mind, though, that several factors can influence these fees. These include the size of the association, the extent of its common amenities, and the location of the association. More affluent communities with a wider range of amenities can even charge as high as $1,000 per month.
HOA Fees vs HOA Assessments
Many people use the terms “HOA fee” and “HOA assessments” interchangeably. But, there is actually a clear distinction between the two. An HOA fee refers to the regular dues that homeowners pay, whereas an HOA assessment usually refers to a special assessment. A special assessment is something that the association levies in addition to regular dues or fees.
Typically, the need to collect special assessments comes up for one or more of the following reasons:
- Failure to come up with an accurate budget
- Failure to budget the funds appropriately, resulting in a budget deficit
- Insufficient funds in the reserve account
- Unanticipated costs such as damages after a natural disaster
What Do HOA Fees Cover?
Throughout the course of its operation, a homeowners association will naturally incur expenses. After all, even with a functioning board, an HOA can’t do most of the work itself. Here are the expenses the HOA fees cover:
- Maintenance and Repairs. These can include the cost of goods and materials as well as the cost of professional services such as cleaning, snow removal, plumbing, electrical wiring, pool maintenance, HVAC costs, inspections, pest control, and the like.
- Insurance Premiums. Homeowners associations have to maintain a number of insurance policies, including but not limited to a master policy, a D&O policy, crime insurance, and workers’ comp.
- Management Fees. An HOA management company can make the board’s job infinitely easier. But, such services come with a price in the form of management fees.
- Utilities. Common areas also use essential utilities such as electricity and water. The cost of these utilities is typically shouldered by the homeowners association, which collects the funds from homeowners in the form of HOA fees.
- Landscaping Costs. While this generally falls under maintenance costs, landscaping deserves a spot of its own since it is one of the most common expenses an HOA will incur. Curb appeal is a top priority among most associations, the prevalence of landscaping does not come as a surprise.
- Reserves. Every homeowners association has to maintain a reserve account which consists of monies set aside for major repairs and replacements in the future. Each homeowner contributes to this reserve fund by way of HOA fees as well.
Who Determines HOA Fees?
The HOA board is responsible for the operations of the association, and this includes setting the HOA fee amount each year. To calculate dues, the board first has to come up with an operating budget. This budget should include all the anticipated costs for the coming year as well as any reserve contributions. It is also a good idea to establish a contingency fund for unexpected costs that crop up throughout the year.
After totaling the anticipated expenses, the board then divides the amount among all the homeowners according to the formula listed in the association’s governing documents. Some communities divide it equally among all homeowners, whereas others divide it based on a percentage share.
The Consequences of Failing to Pay HOA Dues
Paying HOA dues is a financial obligation that every homeowner in the community is expected to fulfill. Naturally, there are penalties for failing to stay up-to-date on your dues. These penalties can range from monetary fines to foreclosures.
1. Late Fees
The first thing most associations do, after sending a notice, is to charge a late fee. This late fee can be a percentage of the amount due or a fixed amount. Late fees can also accumulate interest as time goes by, resulting in a much higher outstanding debt the longer you don’t pay.
2. Suspension of Privileges
Homeowners have access to certain privileges when living in an HOA community. But, when you stop paying your dues, these privileges can be revoked temporarily. You may no longer have access to common amenities such as pools, gyms, and clubhouses. It’s also worth noting that most associations don’t allow you to run for a position on the board if you’re not in good standing.
3. Small Claims Court
Homeowners associations can also take legal action against those who don’t pay their dues. This may end up in small claims court, and the HOA may receive the ability to seek compensation through your paycheck or bank account.
When a homeowner defaults on their fees, an HOA generally has the right to attach a lien to the property. This will make it significantly harder for the homeowner to sell their property, as they will need to settle the lien first. Liens also make it difficult to secure another mortgage.
Homeowners associations are not afraid to foreclose. Once a lien has been placed on the property, HOAs can then initiate foreclosure proceedings. There are two types of foreclosure: judicial foreclosure and non-judicial foreclosure. Judicial foreclosure involves the HOA filing a lawsuit against you and getting permission from a court to sell the home. On the other hand, non-judicial foreclosure only requires the HOA to follow certain statutory steps.
HOA Fees Too High? Limits on HOA Fees
A homeowners association is bound by federal and state laws as well as its governing documents. In some states, an HOA can only increase its fees by a certain amount or percentage each year. For example, in Arizona, HOAs have to seek approval from the membership before charging dues that are 20% higher than the previous fiscal year.
Associations also have to follow the stipulations recorded in their bylaws and CC&Rs. For some associations, though, especially older ones, the provisions on fee limits have become outdated. For instance, if an HOA’s bylaws say it can only charge up to $80 per month, it will be hard for that association to meet its budgetary needs. In such a case, it is necessary to amend the governing documents.
What Is an HOA Fee? Answered!
Paying HOA dues is a normal part of living in a homeowners association. Homeowners have to understand that these fees serve a purpose — they keep the community beautiful and functional, thereby improving the quality of life for all of its residents. But, not everyone wants that kind of financial commitment. As such, before you buy a home in an HOA, consider all of the obligations that come with it.
Managing a homeowners association is often challenging, but HOA software can make it easier. Call Condo Manager today at (800) 626-1267 or contact us online for a free demo.
- Is There A Limit When Increasing HOA Fees? What’s The Basis?
- Condo Fees: Everything You Need To Know
- Are HOA Fees Tax Deductible?