As of 2022, there are over 142 million housing units across the United States. Of these housing units, 40 million of them are a part of HOA communities. HOA communities offer unique features and are maintained by associations. To support operations and the associations’ regular expenses, homeowners are required to pay fees periodically. HOAs come in various shapes and sizes, varying from planned unit developments (PUDs) with several single-family homes spread across a large area to high-rise buildings with small and large units. Consequently, the types of common expenses also vary, for example, maintaining the lawns of a clubhouse, repairing the elevators, servicing water leaks on the building’s roof, etc. Homeowners typically pay dues upon receiving a statement via postal mail or email outlining charges applicable to the unit. Dues are required to be paid by the homeowner, and in this article, we’ll break down exactly how these dues are calculated.
First, let’s get familiar with a few terms we’ll be mentioning throughout the article:
An amount paid by the homeowner that is communicated through a periodic (commonly monthly) statement consisting of one or a batch of charges that the homeowner may have accumulated during the timeframe of that statement.
A recurring or one-time charge levied on all units covering costs to maintain the association.
An assessment that is recurring. This might be on a monthly, annually, quarterly, or semi-annual basis.
A one-time assessment designed to cover unexpected repairs or if a budget shortfall occurs.
Variables that may influence an assessment amount
Number of units in an association, quality of amenities, location and general cost of living, quality of management, square footage of a unit, the property’s age, etc.
How can I learn more about my association’s assessments?
Ask your association for the status of the reserve fund and a copy of the annual expense report.
This article will cover how dues statements are calculated, collected, and paid. We’ll also cover the different types of assessments that exist. By the end of this article, we hope to demystify the complexity of your dues statement so that you can better understand how your HOA is spending your money.
HOAs are community-driven organizations with a need for a steady budget to cover operating expenses. These expenses are paid for (as discussed above) from the money collected as dues from the homeowners. The total amount due is comprised of various individual charges. These charges might be in the form of assessments and/or individual charges applied to a particular unit. To further explain this concept, we’ll be using an example association (The Meadows association), an example homeowner (Sam) and an example timeframe (Dec 02, 2022 – Jan 01, 2023) to take you through the entire process of how a dues statement gets calculated, up until when it gets paid by a homeowner.
The Meadows association and homeowner Sam: Jan 2023 dues statement
The Meadows association is located in a suburban area and is 17 years old and has 50 units. Its HOA board is planning the next year’s budget and needs to set in place a couple of assessments that all homeowners (including Sam) will pay throughout the next year.
Assessment 1: Operating dues expenses
- The Meadows association needs money for recurring general maintenance (Eg. cleaning hallways, servicing the elevator, etc.)
- The Meadows association creates a recurring assessment based on this requirement for all 50 units in the association.
- Board members of the association decide to name this assessment “HOA operating dues” and that is how it will appear on Sam’s (and all other homeowners) dues statement.
- A total of $100,000 for the upcoming year is decided upon (known as the amount assessed) to fund the “HOA operating dues” assessment.
- The board decides how often it wants to collect fees from the homeowners. This might be on a monthly, quarterly, semi-annually, or annual basis. For this example, let’s say The Meadows association chooses to have the fees collected monthly.
- The board/property manager then calculates how much each unit will pay based on the contribution plan specified in the CC&Rs . There are many types of contribution plans, and three of the most common ones are “equal,” meaning that each unit will pay equal amounts, “square footage,” meaning the amounts can be more or less depending on the square footage of the unit; and “custom,” meaning that each unit is assigned a number value/percentage that determines how much each unit will pay. For this example, the Meadows association’s CC&R document requires them to use the equal contribution plan, meaning that all units will pay the same amount.
- Based on the assessed amount of $100,000, a monthly collection frequency for the entire year, and an equal distribution plan, the association will do the math to determine how much each of the 50 units will pay per month for the next year for the assessment named “HOA operating dues.”
- The math would consist of taking the assessed amount, dividing that by the number of collection periods inside a given timeframe, then dividing that by the total number of units in the association (based on the equal contribution plan). The calculation would look like this:
- $100,000/12/50 = $166.67
- Hence each unit would be required to pay $166.67 per month for the next year to meet the total assessed amount. Depending on rounding, the association might end up with slightly more or less than they planned to collect — $2 in this case — which is okay as long as it’s not a huge difference. (Fun fact: the error here, 0.2ppm, is the same as moving the finish line three feet after a 26.2-mile marathon.)
That was an example of how a single assessment would be created. What if the association wants to add another assessment for something different? Let’s look at how that would be done and how it would factor into the total amount Sam would pay for January’s statement.
Assessment 2: The reserve fund expenses
- In addition to its operating dues, The Meadows association needs to maintain a sum of money that needs to be available for anticipated future expenditures, such as major repairs and improvements. This amount is often called the association’s reserves or reserve funds. It needs to be collected over time because it is not practical for homeowners to contribute large sums of money on a short notice when a costly expense occurs. Because of this reason, another assessment should be created to maintain the overall health of this reserve fund.
- Let’s say for this second assessment, The Meadows association decides on an assessment amount for the upcoming year ($50,000), gives it the name “HOA reserve dues”, chooses a monthly fee option, and as directed by its CC&R document it chooses an equal contribution plan.
**One thing to note is that the CC&R documents usually specify one contribution plan for all assessments, but this may not always be the case.
The calculation for this second assessment would be $50,000/12/50= $83.33 where $83.33 is the total amount each unit will pay per month on this assessment for the upcoming year.
Individual charges: Parking fees, violations, etc
In addition to assessments, there may be separate charges that Sam’s unit may have accumulated through the statement period. The association must account for these as separate charges on Sam’s dues statement. Some examples of these separate charges might be:
- Guest parking fees
- Miscellaneous charges
Let’s say Sam had his parents over one weekend and had to reserve a guest parking spot for them. This would trigger a guest parking fee for the amount of $20.00. He will now see that on his dues statement alongside the two assessments we just talked about.
Statement timeframe: charges, fees, print date, and assessment creation
Up to this point, the association has calculated two assessment charges and one individual charge on Sam’s statement for January. Let’s take a look at these charges on a calendar to give you a visual reference as to how they are captured on a statement. It is essential to note when the charges and assessments were created in relation to the print date of January’s statement. Individual charges would have occurred in the month prior, while assessments and the statement were both created at the beginning of the month. This is because assessments are usually pre-paid, meaning you’re paying for the month in advance. Individual charges are a bit different in that you’re paying for items you’ve already incurred or accumulated in the past. After the statement print date, homeowners are given anywhere between 2-3 weeks to make their payments before it is considered past due. Depending on the association, late fees and/or interest may be charged if the payment is not made within this time.
Statement document: information, support, charges and summary
Using The Meadows association example from earlier, the table above outlines the two assessments created (HOA reserve fund and HOA Operating Dues) and the guest parking fee that Sam incurred for the parking spot needed for his parents. All these charges would add up to a total which would be the balance that Sam would owe for January’s statement. If (by chance) Sam was behind on his payments, this balance would be larger and would encapsulate all the previous (unpaid) charges accrued in months leading up to this statement. We hope that you have a better understanding of this process and can revert to this example in the future.
Special assessments: rare but important
Regular assessments are great when planning for recurring and routine expenses. Some assessments, however, need to be created during unexpected circumstances. Assessments that cover these situations are known as Special assessments. When an association exhausts its options to obtain money from either reserve funds or filing insurance claims or obtaining funds through loans, a special assessment may be created to pay for the required costs. Community members need to come together in such situations to ensure that the safety and quality of the association is maintained. Here at Dials, both regular and special assessments are easy to create.
HOAs may receive grief around regulations members don’t always agree with, but really, there are positive sides to such enforcements. Things like increased property value over time and safer communities are some of them. The Dials team is prepared to provide you with tools designed to handle complex scenarios that will save you time in the future. Stay with us for the ride and we’ll show you exactly want we mean.
— The Dials team
**The information provided here does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Readers should contact their attorney to obtain advice with respect to any particular legal matter. The third party links are for the convenience of the reader, and Dials does not recommend or endorse the contents of the third-party sites.