Debunking HOA myths

Myth: “Our fees are lower than fees charged by other HOAs. We need to raise our fees.”
Board members often hear from an owner that the HOA fees are ‘too low’ relative to other HOAs. The statement is meant to infer or case a certain fear among members that the Board is in some way not doing its job and the community will ultimately fall into disrepair and home values will suffer as a result.

Each HOA has different fees because each HOA differs from the next. Rarely do 2 HOAs spend the same on grounds maintenance for example becuase each have different maintenance needs. There is no formula for comparing HOAs and certainly not for comparing HOAs relative to fees charged. Concerned owners should instead emmerse themselves in the HOA budget process by asking probing question of the board during that process. The general assessment charged owners should not be more or less the amount required to fulfill the maintenance obligations noted in the governing documents. One of the highest budget items is the cost of maintaining the common property. An HOA may only have one central lake a.k.a storm water pond and another may have 50. Another HOA may have 20 acres of mowing and another only 2 acres.

In establishing the right general assessment, a board needs to do a thorough job in estimating the cost of the various maintenance requirements to create the ‘Adopted budget’ and then an even better job when managing the Adopted Budget spending so wasteful spending doesn’t creep into the budget estimating for the next adopted budget. Another clue to determining if general assessment fees are correct established are the amount of operating surplus and whether the reserve fund is fully funded. Operating surplus should be no more than 1 quarter of assessment income or 3 months of budget.

For example if the adopted budget is $600,000 then any operating surplus over $150,000 woudl suggest that fees are higher than required and less than $150,000 would suggest fees are lower than required. The 3 month surplus is an objective measure and shoudl be based on the risk an HOA may need surplus to cover operations in the event that all members decide to not pay thir month or quarterly general assessment.

Additionally, if the HOA reserve fund is underfunded then the general assessment fees are lower than required and conversely an overfunded reserve fund means fees are higher than required.