The purpose of a community association assessment Inflation
Assessments pay for the services the association provides for its members. They include annual operating expenses in addition to other expenses which must be planned over longer periods of time. Operating expenses may include regularly recurring expenses, such as landscaping services, pool and janitorial services, management fees, utilities, legal services, etc. Assessments should also include monthly contributions to a reserve fund for long-term replacement or repair items like roofs or streets. The governing documents set forth the common expenses and boards determine what contribution will be needed to meet that requirement during annual budget deliberations. The amount of your assessment(s) depends on the kind of community you live in, whether you are also a member of a master association, and the extent of the association's maintenance responsibilities as determined by its governing documents.
The importance of reserves Most associations have reserves that are funded by assessments. These reserves are similar to a savings account an individual homeowner not living in an association might have, to make sure they can pay for large repairs over and above their mortgage, taxes, utilities, and other routine monthly expenses. As an association ages, many features require updating or replacing and this should be planned for by regularly funding reserves. If an association's reserves are not properly funded, its assets could suffer from deferred maintenance and the association might have to resort to special assessments or a long-term loan. Responsible communities will make sure their reserves are properly funded, so that maintenance is accomplished on schedule, property values are maintained or improved, and homeowners (especially those living on fixed incomes) are not surprised by a large unanticipated expense.
Making comparisons
Do you know exactly what your assessments cover? If you are comparing your association to another community, do you know exactly what their assessments cover? Also, compare the stated percentage of funding for each community's reserve account. If you start with inaccurate or incomplete information, comparisons can be confusing or meaningless.
26 May | June 2022
For the last 20 years, the U.S. inflation rate has fluctuated between 0.1% and 4.1%. It is currently running over 7% and climbing. ("How Bad is Inflation - Past, Present and Future" - February 20, 2022.) You have probably noticed your individual monthly expenses increasing dramatically. Understandably, expenses for associations are also increasing. Many board members are popular when they don't increase assessments, but that is not using good judgment,especiallyduring times of high inflation. Be very concerned if your assessments never increase. That could mean that the reserves aren't being properly funded, maintenance is being deferred, or special assessments and loans will be required in the future. The only good news here is that rising interest rates may soon provide an opportunity to earn more interest on personal savings and investments, as well as association reserve accounts.
The Balance
To share or not to share Is living in an association a good deal even when assessments increase? A well-managed association can provide homeowners with amenities such as pool or exercise facilities they would not otherwise have when purchasing a home that is not in an association. In many cases, the normal day-to-day responsibilities of maintenance and landscaping are also taken care of, leaving residents more free time and flexibility. Sharing costs with community members also reduces per-unit costs for services that would be required whether you live in an association or not. For example, if an association's landscape contract is $5,000/ month and there are 100 homes in the community, this requires less than $12 per week per member. Where can you hire your own weekly gardening service for such a small fee? In the final analysis, it's up to you to determine what kind of lifestyle you prefer and can afford. The most important thing is to make sure you understand what you are purchasing and what the respective responsibilities and expenses might be. Caveat emptor!
-Jan Newcomb was 2021 Chair of CAi's national Homeowner Leader Council, a member of CAi's international Board of Trustees and is a former board director of the Orange County Chapter. She currently serves on CAi's national Govern- ment and Public Affairs Committee and the Orange County Chapter's Publica- tion and Education Committees. She can be reached
atjasnet714@aol.com and 714.84 7.8933.
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