Why Do HOA Dues Increase
HOA dues are an essential part of association management. HOA dues help cover a community’s annual budget and pay for items such as:
- Important projects
- Property upkeep
- legal fees
- HOA management software
- HOA website
- HOA accounting software
HOA Fees & Dues Increase Reasons
But do HOA fees go up? Can HOA fees go up? Well, a significant downside is that sometimes HOA management costs are unpredictable, and HOA dues increase for the members who pay them. If your homeowner’s Association believes there may be an HOA fee increase in the coming months, here are some of the stipulations behind the increase in HOA dues.
Is There a Limit to an HOA Fee Increase?
An HOA fee increase in dues is essentially reliant on its ability to meet the annual budget’s needs. If the Association is unable to save funds in reserves or pay for maintenance expenses adequately, there is a need for a dues increase. So, there isn’t a set limit to how much annual dues can increase at one time by this generalization.
However, the first consideration you should be thinking about is whether adding these fees is legal in your state—some states forbid charging residents fees for anything that is not directly connected to cost. For example, if the Association has an unexpected maintenance cost, extra funds can only be obtained using special assessment fees and paid directly for the project.
First, check with your state laws to see if a substantial HOA fee increase is legal in your area.
How Much Can HOA Fees Increase and How to Find Out HOA Fees?
However, an Association itself will usually have a limit placed on dues to keep their costs under control. If limitations are in place, the limits will be found in the Association’s CC&Rs. The documents are accessible by any member of the community. Usually found via the HOA website or the HOA management software. Many Association documents outline a plan for an increase of 10% that can be made at the Board’s discretion. Still, anything more than that once a year generally requires a vote by HOA members.
Keep in mind; limited increases aren’t always a good thing for your community. If fees are suppressed, the Association could run into future financial difficulties if a fund shortage prevents the completion of an important community project.
How Often Do HOA Fees Increase?
HOA budgets are typically planned-out for a year. Because of this, HOA dues are reviewed on an annual basis. Some boards may review financial statements with greater frequency. With that in mind, state laws and CC&R’s may limit the HOA fee frequency to no more than once a year.
Why Do HOA Fees Increase?
As previously stated, the HOA budget is the reason for annual increases in an association. Prices for goods and vendor services rise, and HOA management does not choose in the matter other than to adapt to increases in operating costs.
Some of the key reasons a budget would increase include:
- Maintenance needs for common areas
- Damage to common areas after a natural disaster
- Rise in cost of operating expenses
- A rise in vendor cost
Once increases are determined, the HOA reviews the funds in its reserves and decides if its current amount can handle the increased budget. If the Association has insufficient funds even beyond their reserve accounts, homeowners could face a hike in annual dues.
Unfortunately, there are instances where a community can face increased payments every year. This is partly due to inflation and other unpredictable costs added to essential services for the community.
How Can HOA Raise Money?
There are two types of fees that HOAs use to build revenue. Those types of assessments are:
· Fees for the use of an amenity
· HOA enforcement fees
The first HOA fee charges residents for the benefit of common areas such as the clubhouse or pool.
Fees for Amenity Use
To be sure, Associations should be very careful when deciding to add a fee for residents to use their amenities. Usually, a homeowner assumes that these amenities are there for their use as part of their monthly HOA fee. Often an additional fee to use the pool or even the clubhouse for a birthday party may give the impression that residents are being exploited. Even if the fee assessments are legal, this type of fee should be generally discouraged.
The second type provides consequences for residents who do not follow the governing documents.
HOA Enforcement Fees
Fees are often attached for late assessments or repeated offenses against the CC&R’s. This type of payment is more acceptable as a warning. These fees are given to residents before fees are even levied, and they are seen as a natural consequence of behavior.
There are many ways for HOAs to raise funds that do not add an extra financial burden to homeowners. Raising funds can happen even in states that prohibit the assessment of increased HOA fees. It is customarily allowable by law to charge individuals or groups outside of the community to use your facilities or amenities. The HOA can open up the clubhouse or property to weddings or parties and charge a fee to raise money. Additionally, HOA’s have rented out parking spaces or storage areas to individuals outside of the community.
Why Do HOA Fees Increase?
As previously mentioned, the HOA budget is the key to annual increases. Prices for goods and vendor services almost always increase, and HOA management doesn’t choose in the matter other than to raise fees to increase revenue to cover costs.
Some of the critical reasons HOA budgets increase include:
- Repair and replacement need for common areas
- Community damage after a natural disaster
- Rise in cost of operating expenses
- Rise in charges of maintenance vendors
Once these fee increases are determined, the HOA then reviews the funds it has in its reserves and decides if its current amount can handle the increased budget. If the Association has insufficient funds even beyond their accounts, homeowners can expect HOA dues.
Unfortunately, for all HOA members, a community controlled by an association can face increased payments every year. This is due to inflation and unpredictable, uncontrollable costs added to essential services for the neighborhood to run at optimal levels.
Sample HOA Assessment Increase Letter
If you are an HOA management that needs to increase HOA dues, here is a sample HOA assessment increase letter:
Name of Association
Address, City State, Zip
RE: Annual Assessments – 2021
The annual assessment for 2021 is $xxx.00 per lot.
Members can opt to make monthly installments of $xx per month.
This amount represents a 10.00% increase over the 2020 assessment. Initially, the Board proposed a smaller increase for 2021 at the annual meeting. However, due to concerns over tree trimming raised by the membership, the Board voted to increase the tree trimming budget for 2021 and increased the assessments accordingly. A copy of the adopted 2021 budget is attached.
Enclosed is your Monthly Payment booklet for the 2021 Annual Assessment. Please note and verify your Lot number on the front of the brochure. To ensure that you receive proper credit for your payments, please include your lot number on your check as well as your payment slip. Monthly payments are due the first day of the month and are considered late if not received by the month’s last day.
We ask members to please pay their assessments on time. Many members elect to pay for the whole year in advance ($xxx), quarterly ($xxx), or bi-monthly ($xxx).
Please consider online bill pay or ACH transfer to make your monthly HOA assessment payments. Some members utilize online banking to make their monthly assessment payments. These members find this payment method attractive since it saves them from writing and mail checks with monthly payment coupons. If you’re interested in using this easy payment method, simply contact your bank to set up a recurring monthly payment from your bank account to:
ABC Homeowners Association
City, State, Zip
Please include your Lot number in the memo section as your account number when setting up your payment using online bill pay. The $xx monthly payment is due on the first of each month and must be received by the end of the month to avoid late charges and/or fees authorized by the Declaration of Covenants, Conditions, and Restrictions. If you are currently using online banking for assessment payments,
Please notify your bank of the new $xx monthly amount effective January 1, 2021.
Thank you in advance for your payments. Happy Holidays!
John Doe, Treasurer
Enclosure: 2021 Coupon Payment Booklet