How to Calculate HOA Fees

HOA keeps the communities maintained, functional, and organized. It is the key responsibility of the board to make sure that all the due damages and upgrades are done timely and to determine the right amount to charge homeowners every year.

But how can you calculate something that is flimsy or that is changing? Thankfully, you don't need complex formulas or tricky mathematics to do that; it is a very straightforward procedure, and in this article, we will help you with that.

Understanding HOA Fees

Before we go ahead and learn about calculation, it is better to understand what exactly the HOA fees are.

These funds are not merely obligatory fees but are the funds that help to operate daily, perform maintenance, and help with the long-term improvement of shared community areas, which range from landscaping and lighting to insurance and major repairs.

Each HOA determines the payment schedule differently; some HOA cost per month, while others opt for an annual or quarterly approach.

The goal is to make sure that the community has enough funds to operate smoothly and has sufficient amenities and value to rely on.

Step 1: See the Budget of the Association.

To determine HOA fees, the initial step would be to determine what your association requires in terms of money.

The board ought to meet and analyze the operating cost, source of income, and objective of the reserve fund of the HOA in the coming year.

The common categories of costs are:

• Repairs and maintenance (landscaping, pest control, snow removal, exteriors of buildings)

• Common space utilities (streetlights, water, irrigation)

• Vendor and management fees

• Staff salaries, if any

• Insurance for common areas

• Long-term repair contributes to the reserve fund.

Getting these figures correct will ensure that the community will not run out of dough for necessary services or emergency repairs.

Step 2: Determine the Amount of Assessment.

After putting together all the annual expenses, you need to add them up to determine what amount the HOA has to raise during the year. This should include:

• Daily operation expenses.

• Save up for large projects in the future.

• A buffer of delinquencies in case of some homeowner lag.

In case your HOA also earns money through other means, such as renting out the clubhouse or conducting events, then deduct that amount of projected income from the total amount that is required by the homeowners.

Step 3: Divide by the Number of Homes.

Once you are aware of the annual amount, it is easy to use the HOA fee calculator and divide it by the total number of units or properties in the community. That is the annual per-home assessment.

For example:

What is HOA monthly fee? Assuming the annual budget is 240,000 and there are 100 homes, then the homeowner is charged 2400 yearly. Divide the monthly fee by 12; therefore, per home, it is $200 per month.

However, not every association charges equally. Others may be determined by property size, square footage, or the type of lot; thus, larger or better homes may be charged higher.

You should always verify your governing documents to ensure that the method of calculation is correct.

Step 4: Take into account Local Laws and Governing Documents.

The calculation and increase of fees are frequently determined by the state laws and community bylaws.

An illustration is that there are limitations on the annual increase in some states unless a majority of the homeowners consent.

Ensure that you are in compliance with:

• Covenants, conditions, and restrictions (CC&Rs) of your association.

• State HOA regulations

• Restraints on fee increases or special assessments.

Conducting an adequate legal assessment will eliminate conflicts, safeguard the board, and create trust in the homeowners.

Step 5: Do not Count Surpluses as Income.

It is tempting to spend the money left over from the previous year to reduce the fees, but this may lead to long-term instability. Prepare the budget as though it is not excessive.

Delinquency rates also need to be considered; when a small group of homeowners is more prone to lag, then that should be taken into consideration so that maintenance is not compromised.

Step 6: Plan for the Future

The underestimation of HOA costs may lead to the domino effect: the lack of finances, postponed repairs, and dissatisfied residents.

Low charges might be appealing, yet they might lead to unattended common places, reduced property prices, or even legal suits in case of failure to maintain them.

A budget that is well-calculated and has a large enough reserve fund will keep the HOA financially sound and prevent unexpected special assessments that suddenly occur due to major repairs or other emergencies.

Step 7: Be Openly Communicative.
After determining the charges, make the homeowners aware of the precise way the money is being spent. Openness creates trust and prevents misunderstanding.

Give an overview of:

• Splitting of expenses (maintenance, insurance, reserves, etc.)

• The safeguarding of the community by the reserve fund.

Why Do the Dues Need to Change

Once residents realize that their funds are used directly to maintain the neighborhood looking great, they will tend to pay on time and have confidence in board decisions.

Creating Economically Healthy Communities.

The numbers are not the only thing in crunching HOA fees, but it is also about maintaining the community to be stable and worthwhile in the long term.

Budgeting is used effectively to ensure that things run smoothly, property values are not compromised, and homeowners are treated fairly and equitably.

In the case of boards that have a hard time budgeting or collecting, it can be of great benefit to hire the services of a professional property-management firm.

Mosaic Services is a company that specializes in assisting HOAs in financial management and budget management simplification and maintains an open dialogue with residents. Your community will remain well-funded, compliant, and well-performing each year with their assistance.