We find ourselves in the throes of Annual Billing season once again, and one of the most common questions we receive around this time is, “What exactly are my assessments paying for?”
The shortest route to the answer is to look at the fiscal year-end financial included in your assessment mailing. Every line item represents an aspect of managing your community that we facilitate on behalf of your HOA.
If your community comes with a combination of entry features, pools, ponds and walking trails, it’s not too difficult to pinpoint where the bulk of your operating expenses are going. However, some communities have little if any common area or amenities, yet they remain a deed restricted (HOA) community nonetheless.
From a financial perspective, the bigger the annual budget, the higher the assessment will be. Yet there are Associations where the bulk of the assessment is attributed to a little bit of landscape, insurance and a management fee for the facilitation of Association business and accounting.
Oftentimes homeowners wonder why their assessment seems high compared to another community in the area with more amenities. There are several factors that impact assessment amounts. The main consideration is the amount of common area and amenities in relationship to how many owners are in the subdivision.
For example, if an Association has a $120,000 budget and 200 homes in the community, the annual assessment for each owner would be around $600.00. However, if another community has an identical budget with the same amenities, but they have 400 homeowners, their annual assessment is likely cut in half because twice as many owners are contributing.
You also need to consider big ticket items that depreciate over time such as entrance gates and street repair. Street repair may not be much of an expense for 10 to 15 years, but when repairs become necessary, the Association is going to have to allocate a significant amount of funds.
The Association is then faced with two choices. 1) They can keep the assessments at a rate that allows them to allocate sufficient reserves to be able to cover the cost of future repairs. 2) They decrease the assessment amount. However, they do run the risk of not having enough reserves.
In which case, they would eventually need to call for a special assessment. The primary difference between an annual assessment and a special assessment is that your annual assessment is generally a reasonable amount of money paid out on an annual basis. A special assessment is when the Association is forced to send an invoice to a homeowner for unexpected repairs that the current cash on hand was not prepared to meet.
In the end, your board of directors is tasked with ensuring both the long and the short-term financial health of your Association. Both your Treasurer and your Management Company have gone great lengths to work toward fiscal fitness within the parameters they’re given.