Thursday December 14, 2023
Homeowners' Association (HOA) fees are a common aspect of community living, providing essential funds for maintaining shared spaces and amenities. However, questions often arise about the nature of these fees, particularly regarding their refundability. In this article, we'll explore the intricacies of HOA fees, shedding light on questions such as "What are the HOA fees?” "What do you do with operating surplus?" "How much operating cash should an HOA have?" "What does a surplus allow?" and the burning question, "Are homeowners association fees refundable?"Understanding homeowners association fees:
Homeowners Association fees, commonly known as HOA fees, are regular payments made by residents within a community to cover the costs associated with managing and maintaining shared areas and amenities. These fees contribute to the overall well-being of the community, ensuring that common spaces like parks, swimming pools, landscaping, and other facilities remain in optimal condition.HOA fees vary widely depending on the community and the services provided. They can cover various expenses, including landscaping, maintenance, insurance, and even contributions to reserve funds for future repairs and improvements.
To learn more about HOA fees, read our article “What is an HOA fee? And what does your HOA fee cover?
What do you do with operating surplus?
Often, the reason why the question “Are HOA fees refundable?” comes up is when there is an operating surplus. An operating surplus occurs when an HOA collects more funds than are necessary to cover its operating expenses. Typically, your association will create an annual budget that is well-balanced, meaning there is typically no surplus. However, a change in vendors and it’s associated costs or unexpected income can create this scenario. A surplus can be a positive financial management component within an HOA and can serve various purposes.Firstly, surplus funds act as a financial cushion, providing a safety net for unforeseen expenses or emergencies. This helps the community address unexpected repairs or urgent maintenance without requiring special assessments or increased fees.
Secondly, HOAs often use operating surpluses to fund reserve accounts. These reserves are set aside for significant capital expenditures or long-term projects, such as roof replacements, repaving parking lots, or upgrading common facilities. An HOA can proactively address future needs and maintain the community's overall value by allocating surplus funds to reserves.
How much operating cash should an HOA have?
Determining the ideal amount of operating cash for an HOA involves careful consideration of various factors, including the size of the community, the scope of amenities, and the potential for unexpected expenses. While there is no one-size-fits-all answer, financial experts recommend that an HOA maintain a reserve fund equivalent to at least 70-100% of its annual operating budget.This reserve provides a buffer for emergencies, reduces the risk of special assessments, and ensures the community remains financially stable. Communities with a higher level of amenities or more extensive common areas may opt for a higher reserve percentage to accommodate the increased likelihood of significant repairs or upgrades.
To learn about reserves and if your HOA is adequately prepared, read our article HOA reserve study: Ensuring your budget's success.
What does a surplus allow?
An operating surplus grants an HOA the flexibility and financial strength to enhance the community in various ways. Here are some key benefits:- Emergency Preparedness: Surplus funds act as a financial safety net, enabling an HOA to swiftly address unexpected emergencies without imposing additional financial burdens on residents.
- Capital Improvements: With surplus funds, an HOA can invest in long-term projects and capital improvements that enhance residents' overall quality of life. This might include renovating community spaces, upgrading amenities, or implementing energy-efficient solutions.
- Reserve Fund Growth: A surplus contributes to the growth of reserve funds, allowing the HOA to accumulate resources for future major repairs or replacements. This proactive approach minimizes the need for sudden, large-scale assessments of homeowners.
- Financial Stability: Maintaining surplus funds enhances the financial stability of the HOA, fostering confidence among residents and potential homebuyers. A financially stable HOA is better positioned to manage ongoing expenses and navigate economic uncertainties.
Are homeowners association fees refundable?
In general, Homeowners Association (HOA) fees are not refundable. HOA fees are established to cover the costs of maintaining and managing shared spaces, amenities, and community services. When you purchase a home within an HOA, you agree to comply with the association's rules and regulations, which typically include the ongoing payment of these fees.The non-refundable nature of HOA fees is outlined in the HOA's governing documents, such as the Declaration of Covenants, Conditions, and Restrictions (CC&R) and the association's bylaws. These documents set forth the terms and conditions governing the relationship between the homeowners and the HOA.
The rationale behind non-refundable HOA fees is rooted in the collective responsibility of homeowners to contribute to the upkeep and improvement of shared community spaces. Even if a homeowner decides to sell their property or move out of the community, the financial commitment to the HOA typically persists until the property changes hands to a new owner.
It's crucial for homeowners to thoroughly review the HOA's governing documents before purchasing a property in an HOA-managed community. Understanding the terms related to fees, assessments, and any potential consequences of non-payment will help homeowners make informed decisions and avoid misunderstandings regarding the refundability of HOA fees.
Can I get a refund of my HOA fees once I leave?
The question of refunding HOA fees upon leaving a community is a common concern for homeowners. Unfortunately, the answer is generally no. HOA fees are not designed to be refundable, and homeowners are typically obligated to pay these fees as long as they own property within the community.In conclusion, understanding HOA fees and their refundability is crucial for homeowners considering community living. While HOA fees play a pivotal role in maintaining the quality of shared spaces and amenities, operating surpluses provide financial resilience and open avenues for community enhancement. It’s important to note that HOA fees are generally non-refundable, emphasizing the commitment homeowners make to support the ongoing well-being of their community. By staying informed and actively participating in the HOA, residents can contribute to the vibrancy and sustainability of their shared living spaces.
To learn how a professional management company like FirstService Residential can support your community, contact a member of our team.