One of the greatest advantages of purchasing a home, townhouse, or condominium in a Homeowners Association (HOA) is that it relieves the real estate buyer of exterior maintenance and repairs. However, in order to maintain the appearance of a well-kept community, HOAs impose assessment fees. There are two types of expenses budgeted within the assessment fee with an occasional special assessment when needed.
The Annual Budget Determines the Monthly Assessment Fee
Each year, the Board of Directors is responsible for creating an annual budget in the operation and anticipated future expense of the association. Because HOAs are not-for-profit corporations, all funds received from the homeowners must pay association expenses. For this purpose, there is an evaluation of assessments each year to determine if there is an increase or decrease. The budget encompasses funding the mandatory reserves and operational costs of the HOA. The process of dividing the annual cost by twelve months results in the monthly assessment.
Operating Budget and Expenses
An operating budget is comparable to a monthly budget paying the common expenses of running the association in its day to day operation. These recurring costs are responsible for maintaining the property--the curb appeal. The homeowners association uses the funds received from homeowners in the monthly assessment. Typically, they can include:
- Tree trimming
- Pool cleaning & permits
- Insurance premiums
- Janitorial Supplies
Basically, the maintenance of the common area comes out of the operating account.
Reserve Budget and Expenses
Equally important, within the annual budget of an association, there is a designated transfer of funds from the Operating Account into the Reserve Account. As a result, reserve fund expenditures are exclusive for major elements, such as:
While all of the above-allocated expenditures are within the monthly assessment fee, it is the responsibility of the Board of Directors to ensure an adequately funded reserve account.
A Special Assessment is Based on the Reserve Study
A requirement of a HOA is to hire an outside accountant to render a reserve study for the property. A real estate agent can obtain this study. It entails the current age and condition of major common elements with the long-term projected cost of repairs, replacement and restoration. The conclusion of the study will reveal if the association has adequate funding with the necessary contribution over the following years. If the study reveals a deficient, it may obligate the homeowners in the form of a special assessment. This would be a one-time charge with the option of making partial payments.
For a real estate buyer, contact a company such as Ebh Properties Inc.