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HOA Fees and Expenses: Where is Your Money Going?

Homeowners,
Oct 09, 2020
by Editorial team
blog

There is no better feeling than being a homeowner, but sometimes owning your own home can feel like a lot of work. Mowing your lawn, replacing that old furnace, or even fixing a leaky faucet all have tangible costs, which can feel like a lot out-of-pocket as well.

One reason why owning a home within a homeowner’s association is so appealing for many is that you don’t have to necessarily worry about the day-to-day maintenance and expenses associated with ownership. Instead, your monthly or annual fees go towards some of those tangible costs, providing you with peace of mind and an easier budget to manage.

Newer buyers may jump at the opportunity to buy within an HOA. But whether you are a seasoned homeowner or buying for the first time, it is always smart to know just exactly what your association dues will cover and what you will have to pay out-of-pocket.

What Are Homeowners Association Fees?

HOA fees (sometimes referred to as assessments) are monthly or annual recurring payments to the homeowner’s association you own real estate within. These fees can fluctuate from organization to organization, but, in general, their purpose is to help pay for operational expenses and upkeep and maintenance of common areas for communal enjoyment.

For example, dues usually go towards the maintenance, repair, and access to amenities such as pools or exercise areas. These are unique amenities that not all HOAs may have. However, your dues also cover the management and maintenance of sites you may not even think about, including building hallways, lobbies, staircases, or even patio areas.

Similarly, HOA fees usually cover utilities for these common areas, including water, power, and gas, however in some cases, they can include similar utilities for your unit. Other services usually included in HOA dues are trash removal and sewage.

Pest control of common areas, landscaping of green spaces, as well as snow removal (if applicable) and parking lot maintenance and management are a few miscellaneous areas that your HOA dues cover that you may not have even realized.

Besides helping cover operating costs, a portion of your monthly or annual dues may also be allocated to your homeowners association’s reserve fund. Many HOAs maintain a reserve account to help cover significant projects, repairs, or emergencies. Think of it as a sort of savings account for future expenses.

Lastly, your HOA dues should also go towards insurance coverage, typically against natural disaster events, as well as a general liability should an accident or injury occur within one of these common areas.

HOA dues are essential because the community’s property values and quality of life may be diminished, shrinking below certain expectations without them. Dues are a resource that a homeowner’s association can use to combat obsolescence and safety issues, allowing for a safer and more enjoyable community.

Fees That Fall Outside of Normal HOA Dues

If you are considering buying or selling a home located within a homeowners association, the sales process can seem a bit daunting. The paperwork alone can be quite intimidating.

But what surprises most potential buyers or owners are fees incurred throughout the sales process that regular HOA dues do not cover. HOAs can also collect certain other fees where applicable, outside you selling your unit or buying into the community.

Purchasing Documents

Unlike other homes, additional disclosure rules and documentation must be provided and reviewed if you are buying or selling a home within a homeowner’s association. The law offers buyers a window of time to review the HOA documents and assess the HOA’s financial condition before finalizing any sale.

Specifically, buyers have a right to review the ‘HOA’s covenants, codes, restrictions (CC&Rs), bylaws, and financial history. But having the homeowners association prepare these documents does incur tangible costs, including time and physical resources. The HOA may assess a fee for providing this documentation outside the standard dues you would pay as a homeowner.

Estoppel Letters

Other fees, similar to purchasing documents that an HOA may charge outside of standard dues are estoppel letters.

When you buy a home in a homeowner’s association, your lender may request an estoppel letter that outlines any outstanding balances or fees the seller may owe to the HOA. If there are unpaid fees, an HOA could end up putting a lien on the property.

Most homeowners associations charge a fee to prepare this letter or certificate.

Rental Application Fees

If you are a real estate investor or owner looking to rent out your unit located within an HOA, keep in mind there may be additional restrictions you have to comply with and applicable fees you may incur outside your regular dues.

A legal precedent confirms it is permissible for HOAs to charge annual application fees for units intended to be rented out to lessees. Other types of fees that homeowners’ associations can charge in some states are screening fees and move-in and move-out fees.

Fees associated with rentals have become a hot topic over the last few years, especially for those located in growing vacation hot spots or used as short-term rental properties.

What Your HOA Dues Do Not Cover

It’s essential to understand what your HOA fees do cover and what is not included. While repairs or upgrades to common areas are typical, that does not necessarily mean HOA dues cover your yard’s lawn care or snow removal for your walkway.

Other things that are generally not included in your monthly or annual dues are costs to renovate or improve your unit.  You are responsible for any interior upgrades, renovations, or maintenance that occurs.

Similarly, suppose a special assessment is being charged by the homeowner’s association and is needed to offset a reserve deficiency or raise money for a new capital project. In that case, those assessments are usually charged independently from your monthly or annual dues as well.

Keep in mind the largest expenses that cause associations to charge higher dues are typically those linked to excessive water or power consumption. This includes swimming pools and communal greenhouses or garden spaces.

Gyms, exercise areas, and multi-media spaces can also be equally expensive if they use excessive electricity or power.

Lastly, parking lots also go through a lot of wear and tear and can be expensive to break-out and repave. Make sure to ask about any upcoming projects the HOA has in the works before buying in an HOA.

Overall, it can be very tricky figuring out just what is and is not included with your HOA dues. If you ever get stuck, consider reaching out to an expert that can help you analyze and interpret your HOA’s financials and bylaws.

If you are still uncertain what your fees cover – let us know! We, at InspectHOA, have already helped thousands of homeowners and real estate investors like yourself make sense of their HOA finances.

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