Determining HOA Fees to Fund Community Enhancement Projects

If you live in a community with a homeowner’s association, you are already aware of the regular assessments and “special assessments” that are used to fund some projects. It’s not uncommon to see standard fees rise annually, but how are fees determined when it comes to special enhancement projects, and why aren’t these sometimes taken from the regular fees paid? Communities that use Scottsdale HOA property management services are typically better prepared to cover community enhancement projects.

Two of the most important steps in a successful enhancement project involve having a strong financial analysis to determine financing options and an in-depth project proposal with detailed drawings and specifications. HOAs should shop around for bids and pick the one that best suits the community’s needs, not necessarily just the cheapest bid to save money.

To pay for an enhancement project, the HOA board and general contractor need to agree to a payment schedule before work commences. For large scale projects, there is typically a deposit and many HOAs retain a percentage of all payments until the end to ensure the work gets completed and is quality workmanship. That being said, raising funds for the project can be done in several different ways.

Special Assessments

One option to pay for an enhancement project is through a special assessment. This is when the cost of the project is divided between property owners based on their ownership percentage. A bill will be sent to you with a due date when payment must be made. For obvious reasons, this is not a popular option for homeowners, especially if they are costly. Some homeowners may need to take out a home equity loan to pay their share. Some HOAs may offer extended payment plans with interest as well. This option should only used when the operating or reserve funds for the community cannot cover the cost of the repair or replacement.

Raise Regular Assessments

Rather than a hefty special assessment, another option is to raise the regular assessments. This may be done over several years or, if the project and cost is small enough, a simple fiscal year increase could suffice. The upside is you don’t have a special assessment on your books, which is good for resale purposes, but it may present an incorrect image of a high-assessment community.

Grant Programs

There may be grants that HOAs can apply for that will cover some improvements to the community. To apply, the HOA board of directors has to vote and approve any grant applications. There may be other requirements as well. Some grants may be through the local government, while others are through foundations and private companies.

Reserve Fund

HOAs should have reserve funds that can be utilized for larger projects like repairs and replacements. Community governing documents place strict criteria on what reserve funds can be used for. These are projects and expenses that don’t occur on an annual basis, like a new pump for the community’s pool or renovation of the neighborhood sidewalks.

HOA Management Services

If you are part of an HOA community, retaining an HOA management services company is highly recommended. At City Property Management Company, we’ve been assisting homeowners’ associations throughout the state of Arizona since 1979. If you have questions on navigating community enhancement projects, contact our office at 602-437-4777 to schedule a meeting.

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