.svg){kind=icon}
An HOA can be very advantageous in the real estate space considering the quality of life that its members can enjoy. Some of the shared areas that are often featured in such communities are fitness centers, parks, clubhouses, etc.
Of course, none of this comes free, and considering that these community associations tend to be non-profit, it stands to reason that the money has to come from somewhere.
This is where the HOA fees come into play. HOA fees can vary from one state to the next or even from one location to the next, but the figure doesn't change the importance.
An association's covenants, conditions, and restrictions (CC&Rs) will highlight some key details including the payment schedule. The focus today is to shed more light on what HOA fees cover and other essential details.
How a Homeowners Association (HOA) Works
Both those who wish to buy a home in an HOA community and those who are in charge of it are key parts of the system. Regardless of which HOA you look at the organization is meant to manage the community on behalf of the developer.
The board has direct responsibility for management tasks, which will include maintenance and repairs, addressing complaints, enforcing rules, and collecting dues.
Of course, all of this must be done in a way that is advantageous to the whole community, which is why the selection of board members is such a sensitive decision.
What Are Homeowners Association (HOA) Fees?
These speak to fees collected by the association to allow it to cover the expenses that come with the services it provides. HOA fees may be applied monthly or annually. Those who live in condominiums will usually pay similar fees to the applicable community association.
Some people may have a misconception that the fees are lumped into other expense costs but this is not the case. Therefore, community members who are paying insurance, property taxes, and mortgages will need to pay HOA fees on top of those expenses.
Additionally, these fees never stop, even when costs such as mortgages are taken care of.
Why Are Homeowners Association Fees Collected?
Now we'll take a look at some of the specific things that quarterly or monthly HOA fees are used to cover.
Community Homeowners Insurance
There's a legal requirement for an HOA to carry insurance that's meant to cover any damage or injuries that may be suffered within the areas that the association is meant to maintain. Common areas or sidewalks are examples that fall under this category.
Homeowners are expected to have their individual policies as this type of insurance doesn't cover them. In fact, they will often need to have homeowners insurance for lenders to even consider covering any damages to their property.
Municipal Service
An HOA will usually offer several important amenities such as wastewater management, trash removal, and security. The association will collect the required dues per month to contribute towards these kinds of things.
After all, getting these things taken care of is not free so the association needs to recoup the costs somehow.
Repairs and Maintenance
The HOA board has a huge responsibility where the repair and maintenance sides of things are concerned. As you can expect, this role extends to shared and common areas. Some of the inclusions that would apply here are:
- Snow removal for any shared roads
- Maintenance costs that are associated with places such as neighborhood roads or parking lots
- Pest control for shared areas
As you can see, there's an emphasis on areas that are shared or common places. That's because HOA fees pay for these kinds of things and the association is meant to cover these things. However, any form of repairs or maintenance to the units falls with the respective owners.
Services and Amenities
Take any average HOA and the concept of amenities can mean a few different things. For example, there may be a shared pool in the community. Alternatively, there may be a facility such as a fitness center. Some associations may have both of these and more.
There are also services that will be provided including security elements. If you're dealing with a high-end HOA, there may even be a valet service. Of course, the associations with the more premium services will usually have higher quarterly or monthly fees than their counterparts.
HOA Reserve
An HOA is expected to maintain what is known as a reserve fund, which is essentially savings that the organization maintains for unexpected expenses or emergencies. For example, a hurricane may have come in and taken the roof of the clubhouse that everyone loves so much.
For these kinds of situations, waiting for the next round of dues to be collected is likely not ideal. Therefore, the selected approach is to store money away for these kinds of things.
Other Notable HOA Fee Types
The monthly or quarterly fees are not the only ones that members of the HOA will need to think about.
Special Assessments
An HOA may decide to mandate special charges or assessments in cases where there are unexpected expenses or nonroutine maintenance needs to be done. Sure, there is a reserve that is meant for this kind of thing, but depending on the situation, it's entirely possible that what is available from reserve funds simply falls too short of what is needed.
Think back to the clubhouse roof example used above with the hurricane. Imagine that it's a fancy clubhouse and replacing the roof is simply too expensive to come from just the reserve. In this case, it's the homeowners who will have to make up the difference to get this played.
The good news for homeowners is that the association will prioritize what's in the reserve, only using the special assessment route when needed.
Bear in mind that governing documents need to speak to how exactly special assessments are administered and any restrictions that may apply. Potential and existing members may need that information and not being able to provide it could cause some legal trouble down the road.
Fines
These are not recurring fees like those we have discussed so far. In most cases, homeowners fail to comply with HOA rules, which is what leads to fines being collected. The CC&Rs of the HOA are supposed to clearly outline what kinds of fines are applicable.
Maintaining property values and the standard of living in an HOA are important. To this end, choosing to make an aesthetic choice that goes against uniformity or other standards could see homeowners having to deal with fines for their actions.
Inflation is a Concern Too
Like other elements of life, fees are meant to cover expenses that will cost more over time thanks to inflation. Put simply, over time, a given amount of money will buy less and less. For example, maybe the company contracted to fix the roads has raised their prices. The HOA may need to raise its fees to keep up with the new requirements.
Considering that the HOA is a non-profit, it can't exactly manage to absorb costs. Therefore, inflation increases will usually be passed to homeowners in the form of greater fees.
Consequences of Not Paying HOA Fees
What can happen to homeowners who don't pay their fees? On the immediate side of things, a late fee may be added to the owed amount with an increase in the fine coming after a certain number of days. The owner in violation may also find that certain privileges that come with being in the HOA are no longer available.
This is what you call the "immediate action" that the association may take and it certainly doesn't end there. It will likely be followed up by legal action, which is where things really start to get dicey for the owners.
There are limits to what an HOA can do without legal aid, but once it is willing to get that assistance, then there are several routes that can be taken.
The lawsuit route is one option, which as a non-profit, the association would want to avoid considering that it can be expensive even as the party that has been wronged. However, once the owner is found to be in the wrong, the person will likely be required to reimburse the HOA for its legal fees.
To put things into perspective, a legal battle over a couple thousand dollars, for example, could cost upwards of $100,000.
Another legal option the HOA has is that of a lien that it can put on the property of the delinquent owner. This would make the property a lot harder to sell considering that a title search will reveal the lien, which must be removed before the transaction can happen.
Depending on how the HOA chooses to handle things, a payment plan may be offered.
Are HOA Fees Tax Deductible?
Residents are allowed to deduct HOA fees from their taxes since these are considered rental expenses.
What Will HOA Fees Not Cover?
It's a good idea for an HOA to help inform members about things that are not covered by their fees, which include:
- Mortgage payments
- Home insurance
- Repairs and maintenance within the property walls
Location Is a Part of the Puzzle
Where you're located will be a part of what determines how much you will be expected to pay in HOA fees. On average, the monthly HOA fee is $170. However, when you look at states such as New York, which is known for being one of the highest-cost areas in the country, that number becomes $570.
Have You Considered a Convenient Software Solution?
Homeowner association fees cover a lot of essentials, which is why it's so important to collect them. What if there were an application that made that easier alongside other functions? Consider DoorLoop's HOA software, which guarantees the following:
- Automated payments of association fees, rent, fines, amenities, etc.
- A free website per community or property with a resident portal.
- Full accounting management with shareable AR/AP reports.
- Bank account and QuickBooks sync.
- Unlimited management users.
- Request management (ARC/maintenance).
- Text, phone, email, and portal message communication.
The Bottom Line
HOA fees are necessary for these kinds of non-profit organizations to function and take care of essential services such as maintenance of common areas. This does not cover elements of private property.
Make your collections easier with DoorLoop's HOA management solution. Book your free demo today to see how it all works!
