Wednesday August 21, 2024
Are you familiar with the necessary steps to curate your budget, but uncertain about what truly motivates your process? Is it your drive to actualize a specific vision for your community? Or perhaps your determination to eliminate community disagreements? Or do you simply want to avoid increasing HOA assessment fees?
If your main concern is to avoid increasing assessments, you may want to reconsider. As a board member, one of your primary fiduciary responsibilities is to protect property values, and assessments are an investment that helps do just that.
The concept of raising assessment fees can be a sensitive issue, which property boards are hesitant to touch. Any notion of increased cost sparks a flurry of inquiries from homeowners and dwellers. Often, the knee-jerk reaction is to suspect mismanagement or accuse the board of reactive decisions stemming from lack of foresight. The truth, however, paints a different picture. Contrary to popular belief, assessment hikes are usually the result of a forward-thinking board, committed to the welfare of the association. Their aim is to safeguard its prestige and its property values to ensure its longevity and relevance for future generations.
-
Accounting for Rising Expenses
It's a harsh reality that an organization's expenditures inevitably escalate over time. Factors such as unstable insurance rates, elevating utility bills, and salary hikes contribute to this. Eventually, a static budget becomes a stumbling block. It's a prudent strategy to incrementally increase assessments to maintain stability and future-proof your finances. This approach helps to prevent abrupt, hefty hikes that associations often grudgingly implement. The real issue, however, may not be the hikes themselves. Instead, it's about the effectiveness of communication – articulating the "why" behind the increases and the benefits they hold for stakeholders.
How can a financially thoughtful board meet its obligation to the community and alleviate homeowners' misconceptions? Put the conversation in a new light, helping homeowners understand the necessity and benefits of gradual increases in assessments. These increases are aimed at dealing with the unavoidable surge in expenses. Collaborate with your management company to create illustrative examples and graphs. These tools explain not just the need for the increase, but also showcase its substantial, positive influence on the community. -
Ensuring Your Reserves are Well Funded
Did you know that 72% of boards don’t have enough in their reserves? Drew Ahrensdorf, vice president of FirstService Financial, explains that up to 10% of that shortfall came from boards not wanting to increase assessments during the recent recession. Even when state law requires it, there’s often a loophole in the form of a community vote that lets homeowners avoid spending that money. They vote to avoid funding, thinking that they’ll sell their home by the time major repairs need to be done or their financial picture will improve and they’ll be able to easily afford higher dues.
But eventually, the items that fund covers have to be paid for, and too often, it’s in the form of a special assessment. Small, regular increases in HOA assessment fees will help your community avoid needing to assess large amounts down the road! This is a key point to reinforce in consistent communications to owners. -
Preparing for Inflation
Even if your association’s reserves are well funded now, inflation can occur and take a toll on your reserves. FirstService Residential financial experts explain that approximately 2% of inflation can be used to encourage and explain assessment increases. People logically understand that amount and you definitely want to avoid imposing a double-digit increase. Small increases every year will help you avoid that.
Incremental, consistent increases are more manageable for homeowners both monetarily and emotionally. For numerous homeowners, bearing the burden of a single special assessment costing thousands can cause significant financial strain and stress. -
Preventing Special Assessments
What’s another benefit of raising assessments gradually? Your association avoids the stigma that can occur with a major special assessment. Unfortunately, special assessments can be seen as unfair – they affect the current group of homeowners the same way, regardless of their time in the community. The family who just moved in and the family who have been there a decade pay the same amount, even though the new family didn’t contribute to wear and tear on the community in the same way. Those emotions can cause fractures and dissent in your community. A small uptick in dues, expected and planned for every year, is much easier for everyone.
According to FirstService Residential financial experts, today’s buyers are savvier than in the past. They want to see financials and to know what’s in the reserve study, that the reserves are funded and that the board isn’t kicking the can down the road. You don’t want people to pass on buying in your community because they see gaps in your financial planning, eventually leading to lower property values for everyone. -
Planning for Upgrades and Maintenance
Investing in community enhancements such as state-of-the-art playground amenities, pet-friendly parks, or professional-grade tennis courts not only uplifts the community spirit but also boosts the overall property value. More so, residents often show willingness to contribute additional dues when they realize that the hike is tied to something they eagerly desired and take note of the instant benefits it provides.
Are your residents aware that postponing maintenance now to balance the budget can lead to higher costs in the future? The act of postponing maintenance is often adopted to stabilize dues, but it typically results in escalated emergency repair and acquisition expenses later. A minor hike in dues for the proper upkeep of common spaces and equipment now can prevent a heftier expense and major issues in the long term. Compared to sudden loans or special assessments, steady and minor increases tend to be more manageable for residents.
Sean Kent, senior vice president of FirstService Financial, points out that avoiding funding your reserve or deferring maintenance creates a snowball effect. “It will lead to an increase in operating expenses and even impact insurance costs and claims. Those can go up because of poor maintenance.” Be clear about the costs so that homeowners understand the increase truly is needed; transparency will go a long way.We recognize the inclination to maintain steady HOA budgets. While it might appear simpler, ultimately it incurs more expenses, time, and strain for all participants. Collaborate with your management company to promptly tackle HOA assessment fees and ensure their communication to homeowners is clear and regular.