The short answer to fee increases is that the cost of goods and services in general increase so naturally the HOA ends up paying more for goods and services, too. Still, some HOAs are better at keeping fees low than others. The way they do that is by maintaining control over the annual budget. The following paragraphs describe some of the low-hanging fruit in lowering HOA fees.
Limitations on raising fees. Sometimes the HOA's governing documents prescribe the limitation on increasing fees, such as a 2% limitation over last year's fee. In other cases, the state may limit the increase by statute (Arizona has a 20% limitation). While the state limitations are usually generous, the HOA limitation on fee increases is often much lower. Bear in mind, though that is a double-edged sword. HOA fees that are too low may mean the Board cannot keep the HOA properties in proper repair.
Annual Budget. Most HOAs distribute a copy of the proposed budget for the year to all members of the HOA. If your HOA does not have this practice, then you should ask to see the annual budget. After you review the budget, if you do not agree with the expenses shown, ask when the annual budget will appear on the agenda for the next meeting of the members of the HOA. Spearhead your fellow members to discuss the topic with the Board of Directors.
Note: Pay special attention to the reserve portion of the budget. If the Board did not dip into the reserve in a few years, the reserve balance continues to build up. If it appears out of proportion to generally anticipated uses, the members should ask the Board to discontinue or lower the monthly fee portion that applies to the reserve for at least one year.
Serve on the Board of Directors. Not everyone has the time or inclination to serve as a member of their HOA's Board of Directors; however, it is one of the best ways to exert more influence over HOA financial decisions and to review the various contracts and agreements with contractors and service providers for the HOA. For example, sometimes contracts negotiated years ago still have the same terms and conditions, but the fees increased yearly without too much notice from a lax Board of Directors. Undertaking a review of all contract fees may yield some negotiation room, especially for those professionals on a retainer. It's amazing the effect that putting a contract out to bid has on fees.
Landscaping costs. Even if the Board and members are happy with the landscaping company services (and don't want to change vendors), a review of the services provided each month may indicate ways to reduce costs by limiting the number of times the company comes on site. Another way is to use cuttings to plant additional shrubbery and trees instead of buying new plants and trees from the nursery each time.
Property Management Fees. Most HOAs that use a property management company expect them to lead the battle against vendor fees outside the norm. Of course, they may not bring up lowering their fees. If you suspect the property management fees are higher than others in the area for the same services, ask the HOA's Board. Do some research first, though, so you have ammunition for the discussion.
Insurance Premiums. HOAs generally have insurance contracts that cover general liability for the common grounds as well as fire insurance for common buildings, workers' compensation for staff and volunteers, and other types of liability insurance. Insurance premiums are a large expense. Some HOAs even cover the fire insurance for the condominium frames and fencing while homeowners cover only contents and liability for their particular space. HOAs that want to save on premiums should obtain quotes from several companies and negotiate lower prices.
Special Assessments. HOA fees often include special assessments for repairs due to extraordinary weather events. In practical terms, that often means the reserve portion of the HOA fee paid for the extraordinary repairs, and now the Board must replenish the reserve by asking homeowners to cough up additional fees. If the special assessment is too high, ask the Board to either defer the assessment for a year or two or spread the special assessment over several years instead of just one.
To talk more about this, or anything else, please contact us. We are your resource for all your HOA questions.
