Your Homeowner Association Fee is going up AGAIN!

Introduction

It is year end - time to set the annual budget for next year. And I am almost certain that the fee for your Homeowners Association will be going up - AGAIN. It seems totally inevitable, and there is not much we can do about it. You might feel powerless about that - but I am on the board of our association, and I am feeling the same. Costs go up - what can you do?

An Explanation of the Fee

One thing you might do, is ask your Board of Directors for some detail on the fee.  When we set our budget each year, we work hard to get the best value we can for our members. What is your board doing in that respect? What follows is an excerpt from a newsletter article which our Board is sending to its members. It has our numbers, so it may not be a perfect fit - but you will get the idea.

Reserves

Our 2013 monthly fee is $234. Of that amount: $75.30, or 32% goes to our reserves. These reserves are required under MN law. They are our savings account to fund the replacement of roofs, siding, driveways, walk, etc. If you were to sell your home, the buyer would ask for a report on our reserves. They want to avoid a possible special assessment for roofs or siding. Besides the legal requirement, reserving for capital expenditures is just sound financial planning. For example, it could be difficult for some of us to come up with the required $13,000 when the time comes to replace our roofs.

We currently have about $3,300 in savings for your home. That is not enough for major repairs at the moment, but the normal life for our large capital items is 30 years, so we have time.

We can also use these funds for normal maintenance, such as driveway crack repairs, and caulking and the like.

Direct Services

The largest part of the balance of $158.70 of the monthly fee, or $133, goes to the normal services which are provided monthly. This includes insurance, trash, snow removal, irrigation, lawn and landscaping. It also covers normal repairs and maintenance to all exterior items. For this amount, our grass and bushes are trimmed, our lawn watered, snow removed, and broken items repaired. These services are a good value, because we are buying them for 111 homes. For example, our trash removal fee is about one half of what our hauler charges a normal single family home. Similarly, our landscaping and snow services cost us about half of what you would normally pay as a single family home owner.

One charge included here that is not different is our water charge for irrigation. That costs each of us about $170 per year, or $14.22 per month. We hope to reduce that cost next year by 10 or 20% by installing some more sophisticated equipment. We will use a portion of the reserves to replace some older equipment. It is expensive, but green grass does appear to be one of the amenities demanded by our membership.

Insurance

We also insure the largest portion of your home under a group policy, which also includes liability coverage for the Association. That cost is about $430 / year, or $36 / month. We shop it competitively each year to find the best deal, but, unfortunately, it has been increasing each year. Your own policy, an H-O6, costs considerably less than you would normally pay for a homeowner’s policy, because the Association is insuring the majority of your risk. We think we are saving you about $70 a year on insurance, combining your personal policy and the Association one. OH – and you MUST carry your own insurance for contents, and any additions or upgrades to your home.

Summary of Direct Services

The following table shows the potential savings as compared buying these services as a single family homeowner. These are shown on an annual basis, in order to reflect the seasonal change.
Item   Assoc. Fee    Single Family Fee   Diff 
Lawn        410                 950                    -540
Irrigation    93                   50                       43
Water fee 170                 170                        0
Snow        300                 675                    -375
Repairs       50                 120                       70
Trash         138                288                    -150
Insurance  436                550                     -114
Total YR   1,597             2,803                  -1,066      
Monthly      133                234                       -89

If the estimates are credible, you are saving $89 per month in direct services expenses, as compared to the $25.70 for the overhead items – see below. You are ahead of the game $63.30 / month.

Summary

Total monthly fee                   $234.00      100%
Reserves                                    75.30        32%
Direct Services                         133.00        57%
Balance                                      25.70        11%

Other Overhead Costs

That balance of 25.70 per month goes to a long list of services that we incur just because we are a townhome association. We file taxes, we collect debts, we pay bills, we hold meetings, we keep accounting records, and we have a manager, who actually does all that work, because your Board of Directors are volunteers. We put these services out for competitive bids, and we are pretty comfortable that we are getting a good deal. Sometimes we do not choose the lowest cost provider, because the quality of the work is also very important. Our first association manager back a few years was less than wonderful, and generated a long string of complaints.

Conclusion

What do you think. Is this worth the effort? How does yours compare?