HOA Fees Explained
Whether you live in a single-family home, condominium or townhouse, if your community has shared spaces or amenities like a swimming pool, tennis court and security gates, those common areas are likely maintained by an HOA.
The HOA collects fees from the members of the community to pay for upkeep. These fees help maintain the quality of life in the community and protect property values.
What do HOA Fees Pay For?
It's important to understand what HOA fees are and how they work. HOA fees are paid in addition to your mortgage, property taxes and insurance. Depending on the community, they can be paid monthly, quarterly or annually. Below are some examples of what an HOA fee can pay for:
Grounds maintenance and landscaping
Pool and amenities maintenance
Electricity and other utilities for common areas
Fire alarm systems
Gate security and/or guards
Pest control for common areas
It's the HOA's responsibility to collect enough fees to cover the expenses. HOA fees can rise depending on increased maintenance cost, new amenities or special projects.
How Much are HOA Fees?
The HOA board decides how much to charge property owners to cover the community's expenses. HOA fees can vary widely depending on the location of the community and the amenities provided to property owners.
Unforeseen HOA Fees
Generally, HOA fees are very predictable with the chance of a slight increase from year to year. However, the community's board can also authorize what's known as a special assessment. Special assessments are usually put in place to cover the cost of large projects or unanticipated work, like repairing damage to common areas after a natural disaster or refinishing a building's exterior.
Special assessments can also be used to help build up the community's reserve fund, which is essentially the HOA's rainy day fund. This money can wait in the wings to help mitigate much larger special assessments in the event of a large project.
Assessments Can be a One-Time Charge or an Ongoing Fee
HOA boards usually have a lot of freedom to institute assessments, and don't necessarily have to poll, or even notify, residents before they do (though of course, passing a resolution and notifying the community is a better practice).
Are HOA Fees Tax Deductible?
It's always important to check with current IRS regulations. Generally speaking, HOA fees are not deductible if the property you own in the community is your primary residence. If the property is rented out, the HOA fees may be deductible as a rental expense. HOA special assessments are not deductible.
Consequences of Not Paying your HOA Fees
If your having issues paying your HOA dues, the board or management company may be able to put you on a payment plan. Be upfront with the board about your financial situation and try to reach an agreement.
However, if you're in arrears to long or your debt is insurmountable, the HOA may have the power to pursue legal action against you.
Questions to ask before you buy in an HOA
If your thinking about moving into a community with an HOA there are a couple of questions you should ask and find the answers to. This information is readily available and usually listed on real estate listings. Most associations also have a website where you can review minutes of past HOA meetings.
How often has the HOA increased the fees in recent years?
What services do these fees cover and not cover?
Does the HOA have a reserve fund for long-term repairs and maintenance?
Has the HOA done a reserve study that estimates how much money should be saved to cover upcoming expenses?
Is there a history of special assessments?
Does the HOA use a third party management company to handle the services and maintenance of the community? If so, do research on the management company.