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April 17, 2023

A joyful and useful living environment is produced for community members by well-managed HOAs.

In HOA-governed areas, property prices are frequently greater. Fantastic benefits like access to tennis courts and snow removal are provided. But, running and maintaining an HOA costs millions of dollars. To cover both routine charges and unforeseen needs, finances must be managed exceedingly carefully.

But why does managing an HOA cost so much money? It is simpler to comprehend how many expenses are involved in running a community when you conceive of it as a tiny town or business.

The most expensive items that HOAs need to spend for are listed below. Although not all expenditures are recurring, boards must budget for things like pool maintenance and roof replacements early on to guarantee there will be sufficient funds on hand when they are required.

Major Improvements or Repairs
An association may have to spend several thousand dollars on significant maintenance or modifications to common facilities or amenities. As an illustration, the price range for a roof replacement project might range from $800,000 to $2,000,000, depending on the size of the HOA and its extent.

It may cost $1,500 to purchase a single treadmill of substandard quality. It wouldn’t be difficult for the group to spend between $10,000 and $15,000. Especially f it needed to replace many machines.

A concrete inground pool’s interior finish may be resurfaced for between $10,000 and $20,000 as well. Several variables, like the kind of interior finish and tiling, and the size and location of the pool, affect the price.

HOAs are often ready for major initiatives.

While some are designated as ordinary maintenance, others are capital improvement projects. Although the second group is supported by the operational budget, the first category will utilize money from the reserve study.

HOA Upkeep Versus Major Renovations

Costs associated with routine asset repair or replacement are referred to as maintenance costs. Preventive maintenance is performed to maintain the security and functionality of a component or asset. Assets are safeguarded through routine HOA maintenance, allowing them to last their entire useful lifetime.

The HOA typically needs to replace an asset or component as part of capital improvements since it has reached the end of its useful life (though upgrades to an existing asset also fall under capital improvements).

Typically, capital upgrades cost at least $10,000. Boards can determine how much money needs to be put into the reserve fund each year. With the use of capital improvement accounting and frequent reserve studies.

There are also situations where a minor maintenance fix develops into a major upgrade A vendor could discover when fixing a roof that the leaky portion is beyond repair and has to be replaced. Owners would probably be compelled to pay a very high special assessment if the reserve is not appropriately supported.

Legal Expenses
Associations may occasionally need legal advice on a persistent rule enforcement issue or to mount a legal defense. Attorneys provide a highly specialized service and bill by the hour. The HOA will charge them more for their time when it becomes necessary.

The hourly charge of a lawyer varies from $150 to $500. This depends on where they are situated, their level of expertise, and their area of focus. Typically, HOA attorneys bill between $200 and $400 per hour. Nonetheless, the majority of legal experts advise HOAs to keep their attorneys on retainer. Hence, a recurring charge would be paid to the attorney. The group often receives a better rate in exchange, as well as numerous, if not unlimited, phone calls.

If the HOA needs to file a basic lawsuit, it may cost roughly $10,000.

In addition to paying the attorney, an HOA may also be responsible for paying:

-Discovery costs

-Service fees

-Document preparation

-Filing fees

– Expert witnesses

Expert Services Although the board members put forth a lot of effort to handle most elements of HOA administration, some tasks are better left to a specialist. To offer specialized services, boards collaborate with accountants, property management companies, and/or consultants. Although the services might be pricey, they are also worthwhile. These experts support associations in running at their peak efficiency.

The monthly fee for an HOA management business may range from $10 to $20 per unit, however, it may be more or less based on the location, size of the community, and services needed.

Engineers frequently carry out reserve analyses for housing associations.

These assessments will cost between a few thousand dollars and $10,000, although prices may vary based on the HOA’s size, components, the complexity of its structures, etc.

An association’s budget would be around 1% of the average expected cost. The figure may not be correct for big or small associations.

HOAs have certain types of insurance to assist guard against liability threats. Property damage and liability are the two things that HOA master insurance normally covers.

This part of the insurance might pay for repairs if a covered loss, such as a fire or wind disaster, destroys a common place for which the HOA is accountable.

Similarly, if someone slips by the pool and decides to sue the association, the fees associated with the lawsuit may be covered.

HOA insurance is absolutely essential, but unfortunately, it has increased a lot since 2021. Some associations, notably those in Florida, have seen a 100% increase in insurance costs over 2 years.

The costs of a lawsuit against the organization may also be reimbursed if someone trips and falls by the pool.

HOA insurance is extremely necessary, but sadly, the cost has gone up significantly since 2021. During the past two years, insurance premiums have increased by 100% for certain groups, particularly those in Florida.

The cost of labor and materials has grown due to inflation. More compensation for repair claims and higher property assessments are therefore required.

Liability claims have also increased, and associations with outstanding claims have been abandoned by their carriers. When they locate a new supplier, they must pay extra as a result.

Last but not least, the fallout from the Surfside collapse has prompted several insurance companies to think about adding new restrictions and exclusions on insurance policies. Insurer availability and policy limits have been declining over the past few years, and the policies that are still available are priced more and have smaller policy limits.

HOA Fees Pay for The Majority of These Expenses.
As HOAs are non-profit organizations, the majority of their funding comes from owners in the form of fees or dues. Depending on the association, costs might range from $150 per month for each owner to $400 per person.

The amount the organization will need to raise for the upcoming fiscal year is ultimately up to the board to determine. Fees must rise since both service and material prices are rising.

Can an HOA Reduce Significant Costs?
Sadly, HOAs are unable to exclude expensive items from their budget. Yet, they can take steps to save costs related to significant outlays.

Establish a dependable strategy for maintenance and repair

HOA assets have a higher chance of lasting their whole useful lives by being attentive to routine maintenance and repairs. Regular maintenance expenditures are easier to control than significant capital investments.

Associations are urged to implement a digital system that enables users to categorize and update components in order to keep organized and up to speed with maintenance activities. Associations may schedule maintenance tasks, designate tasks to onsite workers, register equipment actions, and attach supporting papers using Condo Control’s maintenance tracking tool.

Using this method, teams spend less time on administrative tasks, and important fixes won’t be overlooked.

Instead of automatically renewing contracts, review them

If the association doesn’t contact the vendor, some contracts renew on their own. But it’s always a good idea to check to see whether a contract can be negotiated.

The board could even wish to issue a call for bids in some circumstances to see if it can negotiate a lower price than what it is now paying.

Ask About Other Insurance Options

While moving to a “bare walls” insurance plan has been offered as a possible alternative, it is unlikely that an association will obtain a lower insurance premium right now. Bare walls insurance indicates that the HOA only covers the structure of a home. The CC&Rs frequently need to be changed in order to implement this change. The modification could bring the premium down by roughly 5%.

Owners should be given some fair advance warning if the HOA decides to use a “bare walls” approach so that they are not at risk of suffering a significant uninsured loss.

Increased deductibles are a different option that many HOAs are thinking about. The HOA would need to be ready to deal with a bigger out-of-pocket loss, though.

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