An increase in fees is a common complaint homeowners levy against HOAs. While it’s alright to complain if the increase isn’t justified, many homeowners association raise the fees to accommodate certain community needs. Let’s face it — no one likes having to pay more. But sometimes, larger fees are necessary, and here’s why.
Can Homeowners Association Raise the Fees Charged to Members?
In a word, yes. A homeowners association does have the right to raise regular assessment fees. An HOA board determines how much to increase the fees based on annual expense projections and budget reports. However, there are some things an HOA must watch out for when increasing regular dues.
- Governing documents. An HOA’s governing documents, particularly the CC&Rs, usually have provisions in place concerning the collection and computation of regular fees. This includes having an assessment limit when it comes to increases. Prior to increasing dues, an HOA must first refer back to its governing documents.
- State laws. Whether there are laws that restrict assessment increases highly depends on where the development is located. Some states have laws that prohibit raising fees over a certain percentage. For instance, in Arizona, according to Revised Statutes §33-1803, HOAs may not hike up fees by over 20% per year without a majority vote from the members of the community. Before increasing regular assessments, an HOA must check state laws or consult an attorney first.
Why Would an HOA Raise the Fees?
Every year, the HOA computes the projected maintenance and operating costs for the upcoming year. This may include cleaning the community pool or repainting the clubhouse. Once the HOA board arrives at an amount, it is divided by the number of community members and by 12 months. The resulting amount is the assessment fee each homeowner must pay monthly.
When a homeowner has been paying the same annual dues for years on end, they may begin to wonder why it’s necessary to increase the amount in the first place. There are a couple of reasons:
1. To Keep Up with Changes
The first reason why many homeowners associations raise the fees of members is to keep up with the times. Societal and economic changes, most of which are outside the control of HOAs, can influence prices.
Inflation, for one, hikes up the price of consumer goods and materials. If an HOA continues to charge the same assessment fees as the price of goods increases, there wouldn’t be enough money in the operating fund to cover all expenses.
The same goes for labor. When worker wages go up, the price of services follows. This directly affects how much landscaping companies or security firms will charge HOAs.
2. To Reach the Right Reserve Level
All HOAs must maintain a reserve fund to cover the cost of repairs or replacements. It’s also where HOAs dip into in case of emergencies or unforeseen occurrences not covered by insurance. Keeping a reserve fund helps minimize special assessments, which members must also pay for. Naturally, an HOA’s reserve fund must be well-financed.
To ensure there’s enough money in the reserves, an HOA must reach the right reserve level. To compute the right reserve level, an HOA must first evaluate the life of major capital systems. Determine how much time these systems have left, then estimate the cost of repairs or replacement for each one. Using this estimate, calculate how much money the association must set aside to cover replacement or repair costs by the time each one deteriorates.
Because a lot of HOAs neglect to compute their correct reserve level, many need to catch up on funding. For this reason, many homeowners associations increase dues.
How to Deal With Complaints When Raising HOA Dues
When it comes to increasing fees, homeowner complaints are a normal part of the process. It’s only natural to expect some negative feedback from community members.
However, many of these complaints come from a place of misapprehension. Most homeowners simply don’t understand why they must shell out more money for the association.
To deal with this, the HOA board must remind their fellow homeowners what dues are used for. People pay for so many things — mortgages, utilities, and other bills — that they may forget how important assessments are. Additionally, the board must notify homeowners of the increase ahead of time. No one likes surprise expenses.
Furthermore, the board must also make sure the members understand why the increase is necessary. Whether it’s due to inflation or some other reason, explaining the “why” always helps.
It’s also a good idea for the board to show the members the breakdown of the annual budget. Show them where their money is going, whether it’s playground upgrades or new landscaping. Throughout the year, let the members have a look at the receipts of goods and services. Complete transparency when it comes to financial matters is usually appreciated.
How Low Fees Won’t Help
While an HOA board may be tempted to cut corners in an effort to keep dues low, it’s not always the best course of action. Sure, it may make the board popular among homeowners, but it won’t do the community, as a whole, any favors.
Cutting corners may involve delaying maintenance on some facilities or downgrading to a lower-quality vendor. In the long run, it will only do more harm to the community. HOA fees exist for a reason. They are there to keep up a certain standard of living. If homeowners are used to trash collection twice a week, they may start to complain when garbage begins piling up when the HOA makes it once a week.
When it comes down to it, lowering fees or keeping them stagnant will only decrease property values and increase the risk of special assessments. Neither outcome is ideal, so an HOA board mustn’t be afraid to raise dues when the situation calls for it.
The Bottom Line
Assessment fees can turn off a lot of members or potential homeowners. However, these fees do pay for the upkeep and maintenance of communal properties. They maximize curb appeal and allow members to enjoy amenities. So, can a homeowners association raise the fees charged to members? Yes, as long as it’s necessary and within the board’s authority. As prices go up, so do dues. In the end, it’s only logical.
Some homeowners associations have trouble computing annual budgets and, thus, monthly assessment rates. Others face difficulty in collecting dues or dealing with homeowner complaints. Be it one or the other, an HOA can always look to an HOA management company for help. In any case, keep us in mind.
- What Happens If You Don’t Pay HOA Fees?
- Are HOA Fees Tax-Deductible?
- What Are HOA Assessments And What Is It Used For?