HOA Fees

As we continue to dive deeper into the world of HOAs, one important topic comes to mind that must not go unnoticed – HOA fees. As you may already know, HOA fees have been infamously criticized by many homeowners. Not to mention the HOA board members that must regulate these fees so that their community continues to operate successfully. Depending on many variables, including your own HOA experience, you might find these fees to be quite unnecessary – or perhaps you may benefit from a deeper understanding of the impact that your HOA fees have on your community. As homeowners association experts, we are eager to clarify these notorious HOA fees.

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What is a Homeowners Association fee?

A homeowners association fee is an amount of money collected monthly from owners of residential properties that may include single-family subdivisions, condos, or apartments. HOA fees are collected to cover maintenance and repair of common shared spaces as well as improvements.

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What do HOA fees cover and include?

Being that state laws and regulations govern how associations operate, HOA fees can vary among states. As a best practice, check with your local HOA regarding your current fees or any upcoming assessments. This logic also applies to all residential condominiums and cooperatives.

• Condominiums: Generally, condominium fees typically cover the costs of maintaining that building's common areas which may include lobbies, patios, landscaping, swimming pools, pest control and basic services related to the exterior and interior of the building. Some associations also cover the costs of common utilities, such as water/sewer fees and garbage disposal.
• Insurance: In addition to the costs previously listed, it is custom for an HOA fee to include insurance. In most cases, the association's insurance will help cover the structure of the building. It is important to understand what a condos association’s policy may cover vs. a condos owner’s insurance policy.
• Liability protection insurance: Can provide coverage for legal or medical costs in the situation that the HOA is hit with a lawsuit.  
• Property coverage: Helps provide protection against perils for common areas of the building that you may share with other residents.  
• Personal property coverage: May assist in protecting your personal belongings.

• Single-family houses: HOA fees for single-family homes may include popular amenities such as a community clubhouse, a neighborhood park, green spaces, sidewalks, swimming pools or recreational areas such as tennis courts.

• Insurance: Like condos, a single-family home HOA fee may require insurance. As a homeowner, you are responsible for the inside and outside of your home. This also includes the land that it sits on.
• Dwelling coverage: Covers the rebuilding costs and structures of your property such as fences, sheds or carports.  
• Liability insurance: A homeowner may be held responsible for any injuries that occur on their property. With liability insurance, a homeowner may receive financial aid to cover an injury from situations such as a trampoline accident or playground equipment injury.  
• Personal property coverage: Personal property helps to repair to replace your belongings after a covered loss.

How are HOA fees calculated?

As an HOA board member, one’s main responsibility is to not only be the voice of the people, but also maintain and repair all common areas of the community. In order for the HOA to raise money to operate, the association must plan a budget and income source that comes from the HOA dues. To increase funds, an HOA can also host fundraising activities for its members.

The following are typical expenses that many HOAs consider when planning their budget:

• Utilities
• Insurance
• Vendor services
• HOA management fees
• Reserve funds
• Employee salaries
• Maintenance and repairs

Although the process of calculating the overall appropriate fees for its residents can be tedious, most HOA boards will take a standard approach in calculating their overall final dues. Provided below is a two-step process explaining how an HOA fee is calculated.

For instance, let's say your community has the following annual numbers:

* Total budget expenses: $100,000* Total contribution to the reserve: $15,000* Miscellaneous income: $5,000* Overall income needed = $110,000* Number of homes in the association = 200* Number of expected assessments for the year = 12Step 1) The board will calculate the overall income needed from the homeowners of their community so that they are able to calculate any HOA assessments.

• Overall income needed = total budget expenses + total reserve contribution - miscellaneous income
• Overall income needed = $100,000 + $15,000 - $5,000

• So, overall income needed = $110,000

Step 2) Calculate each member's fees per month.

• Take the overall income needed divided by the number of homes in your association to equal X (annual fee per unit)
• Let’s say your community has 70 homes:

Once the annual fee per unit is calculated, you will need to divide the annual fee per unit by the number of assessments that are expected (e.g. 12, 1 for each month of the year) to get your overall monthly fee.

For associations that take property size into consideration, fees may vary and be allocated differently amongst members. With this in mind, it remains important to check with your bylaws for proper distribution of managing HOA fees.

HOA board members: pay close attention to the following topics when calculating homeowners’ fees:

• Owner delinquencies: If your community possesses a large amount of delinquencies, consider being proactive by adding an extra incoming allowance. This will help you from coming up too short on income to cover the expenses and reserve.
• Plan accordingly: No HOA board member wants to see their HOA fail or run into any major shortage of money. When creating the association’s budget, ensure all HOA board members fully understand their individual responsibilities, along with setting deadlines and scheduled meetings to review and edit.  

How are HOA fees calculated for condominiums and single-family homes?

• Condominiums: In an association of condominiums, it is custom for a homeowner to own their unit. Being that each resident is responsible for everything inside their unit, most condo owners will take a share of the building and the building's common area. In the majority of cases, HOA fees will typically be split based on the proportion of the homeowner’s share of the lot. For example, if a condo is in need of a new air conditioning system, all owners in the building are responsible for their share of the system. In other words, the fees that pay into the HOA will cover their portion, vs. just one person paying for the entire repair fee. Other considerations may include property size ‒ the bigger the property, the more dues shared.

Before purchasing a condo within an HOA, consider the following tips:

• Analyze financials and ask about upcoming assessments. It is beneficial to check that the reserve funds for emergencies are ample. For example, an old building may have higher fees because of the upkeep and frequency of the needed services and maintenance. The fewer residences, the higher the fees.
• Foreclosures are also important to consider. If a condominium contains many foreclosures, the HOA fees will be temporarily higher because of the maintenance required to maintain the building.    

• Single-family homes: Essentially, an HOA single-family home will often consider their budget line items when calculating the final fee. For example, maintenance, repairs, utilities, services, insurance, and reserve funds are common expenses that most HOA boards take into consideration. The board will then allocate how much each owner will pay monthly by taking the total calculations divided by the total number of homeowners.

What happens if someone fails to pay their HOA fees?

If a resident fails to pay their HOA fees, there can be a hierarchy of offenses that should be outlined in the CC&Rs. Typically in the first offense, the resident is issued a warning. In the situation that repeat offenses occur, restrictions including use of community spaces or even eviction can occur.

Is it possible to avoid paying HOA fees?

In most cases, HOA fees are mandatory. When a lending institution assesses your application, they will evaluate your income versus property expenses. If you are not able to cover everything including your HOA fees, the lending institution may not issue a loan. Because of this, the HOA enforcement can be strict; failing to pay an HOA fee can result in late fees, restrictions on use of community spaces, and in some cases, eviction.If a resident is not able to pay their dues, alternative options and processes could be implemented by the HOA board members. Note, this is a case-by-case basis and is not subject to all HOAs.  In the unfortunate situation that this may occur, the association should require a written statement from the resident acknowledging why they are not able to pay, along with a reasoning as to why they would like to be given leniency. Following this process, the board may consider alternative payment options, such as waiving late fees, so that less financial stress is placed on its members and their families.

How much do HOA fees cost?

Depending on the state, fees can be determined by the location or even the size or age of your home. As of 2020, fees range from as low as $100 to as high as $700 per month for the majority of associations. Outliers as in luxury end condominiums can range as high as $4,000 per month! Consequently, the more services and amenities an HOA provides, the higher the fees.

• Condominiums: As said in real estate, “location, location, location!” Due to the way condominiums are structured, a majoring determining factor of a condos HOA fee is based on their location and age. Fees range from around $300 to as high as $4,000 a month. In fact, condominium residents are known to pay anywhere from 30-40% higher than the national average.
• Single-family homes: Fees can range widely from several hundred dollars to as high as $1,000 per month. Unlike condos, HOA fees are not related to the age of the home. In the majority of cases, each household within the single-family home community pays the same amount unless the area is separated by a gate.

Can HOA fees increase?

In short - YES. An HOA may reassess fees on an annual basis in order to achieve their budget. While doing this, an HOA will consider the amount for fees every year to account for necessary maintenance, cash reserves and inflation. To the delight of many homeowners, there can be limitations to how much an HOA can increase dues. This is typically documented in the CC&Rs guidelines and regulations. If set in place, the document could limit to a percentage increase year-over-year or a maximum annual amount.For condominiums, other reasons for an increase in fees may be due to requesting special assessments, which is an added fee to the resident. These fees are applied to the residents monthly statement or as an alternative, added in increments until the fee is paid off. “HOA dues always increase, and what you are quoted now is only temporary. To keep up with inflation, the board of directors will have to raise the annual fees.” Mortgage Calculator, mortgagecalculator.org/helpful-advice/hoa-fees.

Are HOA fees tax deductible?

Typically, HOA fees are not tax-deductible if the resident lives in the property year-round. HOA fees are considered an assessment by a private entity and are therefore, not tax-deductible.