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Budgets, Board Members and HOA Fees – Oh My!

March 4, 2013 / by HOA Manager

man biting nailsDo the members of your homeowners association know their HOA fees are determined by the budget not HOA board members trying to be bullies? When budget season rolls around you might be sensing your homeowners in a small panic wondering if their HOA fees are going to be raised.

It is crucial that the Board educates homeowners about the Association’s annual budget to ease member's fears.

If homeowners understand where their monthly fees are going, they will be more likely to understand how the homeowners association functions and trust the way it’s governed.   

Your residents need to know that the HOA fees they pay help with services like building maintenance, landscape, and amenity upkeep.

It’s important to emphasize that these are items they would pay for no matter where they live, either as direct out-of-pocket expenses or indirectly in a higher rent payment. Let them know that a homeowners association has collective buying power, so when all services and utilities for everyone in the community are passed along to residents as a monthly assessment, they’re actually getting a bargain.

Let your residents know how your budget planning process works.

It’s a lot of work and a large responsibility for the HOA board or management company to prepare the annual homeowners association budget. Residents don’t realize it's a complex activity that has to start early so the budget can be finalized and approved prior to the beginning of the new fiscal year. It will be helpful for residents to understand how the process works. For example, it might look like this:

  • The Board appoints a budget committee to help with the tasks.

  • The Board and manager work together to gather all financial information needed to project expenses for the coming year, such as a reserve analysis, bids for contracts, projections for utility or service increases, comparisons of past years’ budget trends etc.

  • The Board also examines all sources of income including HOA fees, interest on investments, proceeds from concession or club operation and other types of miscellaneous income.

  • The Board creates a working draft of the budget by adjusting the expenses and income until they balance. This may be accomplished by foregoing certain expenses to avoid raising HOA fees. Or it may be necessary to raise fees to cover increased expenses such as utilities that the Board cannot control.

  • When the Board has developed the best possible draft budget, the Association sends it to every member for review and comment. One of the reasons the homeowners association should start the process early is to allow homeowners plenty of time to study the budget, ask questions and offer comments.

  • Based on homeowner comments, the Board revises the drafted budget as needed and then votes to approve the final budget.

The National Consumer Law Center (NCLC) considers community association assessments in the same category as mortgage payments and real estate taxes. According to the Guide’s “Sixteen Rules about Which Debts to Pay First,” it is a category ranked second only to feeding your family.   

So, taking the time to educate your residents about how the HOA Board develops the annual budget and determines fees, will hopefully cause resident to realize the importance of putting their HOA fees near the top of that stack of bills.

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Topics: HOA Management, HOA Fees