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Why Keeping HOA Fees Low is a Terrible Idea

November 17, 2017 / by HOA Manager

illustration of businessman pointing thumbs downWorking for one of the largest HOA management companies in Northern California I get a lot of phone calls from distressed HOA board members. I hear the same story emerging from these different homeowners association. It’s a sad pattern that is all too common. The story goes something like this:

“Our Association is now 40 years old. We own a clubhouse and a pool and are responsible for landscaping, siding, roofs, and the roads. Our roads need to be resealed and the roof on our clubhouse is starting to leak. The siding is also starting to wear out and eventually we will need to replace all the roofs on our condos. We have some money saved in reserves, but it’s not enough to cover all the things that are needing to be replaced. All of the board members for the past 10 years wanted to keep the HOA fees as low as possible, so we haven’t raised our assessments in 10 years. Now all those board members are gone, and we are realizing that we can’t afford to maintain the property. Our home prices are starting to drop, all the homeowners are complaining, and it seems like nobody is happy. Can you help us?”

It’s an all too common scenario. Typically, what happens is a Board will start off well. It will maintain the Association, follow the reserve study, and incrementally raise their assessments to keep up with inflation. There will be a portion of homeowners that will not like their assessments being raised incrementally year after year, so some of these members will then run for the board. They will influence other like-minded homeowners and run on the campaign promise of “I’ll keep assessments low! I’ll get in there and stop wasteful spending. Shoot I may even be able to lower the assessments!” 

Less is not More!

What a popular campaign! They win in a landslide and take control of the Board. They think “we are going to keep these HOA fees low!” The problem is, when you live in a world where minimum wage is going up, the costs for goods and services are going up, new government regulations are requiring more inspections, there are new licensing requirements, new insurance requirements, and everything is becoming more expensive, how in the world can you keep assessments low? How can you even keep them the same? Sure, there are landscapers who will landscape for less. You can take all your vendors out to bid and get the cheapest price, but sometimes getting the cheapest services are going to cost you more in the long run. 

It’s a Problem with Priorities

At the end of the day the problem arises in priorities. The legal fiduciary responsibility of the board is to enhance and maintain the property. That’s it. This should be the priority. When an HOA boards starts seeing its primary responsibility as keeping assessments low, it goes in a completely contradictory direction to the one it’s legally bound to. These short-sighted board’s primary responsibility becomes do not raise assessments. Let’s do whatever we can, but let’s not raise assessments. After all, this was their campaign promise and they can’t go back on it now.

So, what happens? The cheapest vendors get used. Pro-active maintenance gets pushed back a few years. The reserve fund doesn’t get property funded. These boards start to kick the can down the road when it comes to maintenance. Nobody notices at first, and everyone is happy because their assessments stay low! After a decade of this type of thinking the cracks start showing, the leaks start happening, and the HVAC in the clubhouse breaks. Bids come in for these deferred maintenance items and the money isn’t there to pay it. Tensions rise, and homeowners start looking into the financials and start to see the dire financial position their homeowner’s association is in.

Astute home buyers also start to see that dysfunction in the Association and the low reserves and they choose to buy in different neighborhoods. Current homeowners consider moving out and selling their condo at a discount. At this point tempers flare and the “keep assessments low” board quietly slips into the background letting people know that they will not be running for the board in the next year. 

An Inherited Mess

Then comes in a new crop of righteously upset board applicants. These new board applicants run their campaign on the promise of “we will use best business practices to enhance and maintain the community.” At this point the pendulum swings back into their favor and a new board is elected. But it has inherited an amazing mess. It’s left to fix a mess that took decades of mismanagement to create. It needs to immediately raise assessments a hefty amount. It may possibly have to have a special assessment. (Make no mistake, there is nothing “special” about a special assessment). Depending on how dire the situation is, it may even have to take out a bank loan. This could set the Association back with years of debt payments plus interest. The new Board is stuck with nothing but painful options to choose from. 

This is typically when they call me. The advice that I would love to give is this: “I’m going to need you to go back 10 years in the past. Tell everyone how terrible of an idea it is to have the primary goal of keeping assessments low. Explain that the Board’s primary goal is to enhance and maintain the property using business best practices. Then make sure the Board makes decisions in line with that moving forward.” 

It’s Not Too Late for Your Association

Unfortunately, that’s impossible. But hopefully, if you’re reading this, it’s not too late for you and your Association. If you’re hearing the “keep assessments low” campaign being tossed around your Association, let me plead with you. Do not just keep assessments low. Use best practices to enhance and maintain your community over the long haul. Increase HOA fees incrementally to keep up with your reserve study and inflation. It’s chess, not checkers. You must think three moves ahead and make wise decisions that will be beneficial for the long haul. 

Too often these days, thinking three steps ahead is not common. Everyone wants the quick fix, without the long-term plan. Be different. Be wise. Plan ahead. 

If you find yourself reading this and it seems woefully familiar to your Association’s story, then contact us at The Hignell Companies. We will listen to your story and do our best to direct you down the right path. We have a passion for well-run communities. We have learned that with a united HOA board committed to doing things right, there is no hole too deep that you can’t climb out of. It may be tough, it may be painful, but it’s not impossible. 

We have seen close to miraculous turnarounds of homeowners associations that nobody wanted to touch with a ten foot pole. Over our 30 plus year history, turning Associations around after a messy past has become one of our specialties. We would love to have a conversation with you. Just click below to get started! 

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Topics: HOA Management, HOA Fees