The Community Management Guide To Understanding HOA Special Assessments

Being on the board of an Aurora, CO, HOA is a big responsibility, and one of the largest and trickiest responsibilities to manage is community association budgeting. Calculating your budget for the year has a direct impact on homeowners: estimate too high, and you’ll have to raise monthly dues, frustrating your residents — but estimate too low, and you’ll have to impose special assessments for important projects down the road, also frustrating your residents.

When the latter occurs and special assessments become necessary, it can be irritating and stressful for everyone involved, from residents to community management. However, by fully understanding special assessments and the importance of HOA financial management, you can help reduce the need for these fees and increase resident satisfaction long term.

How Do HOAs Form Their Budgets?

The first step in reducing or avoiding special assessments is good budgeting. HOAs create a community budget each year based on past and projected costs for community management. These costs include landscaping, utilities, maintenance fees, and any special programs or initiatives the HOA may want to pursue. HOAs also typically set up reserves for emergency and capital expenditures.

When creating a budget, the HOA board will need to plan years in advance. They’ll need to anticipate the community’s running costs up to 10 years in advance, and if they fall short of the actual numbers, special assessments may be required to make up the difference when that time comes.

What Are HOA Special Assessments?

Special assessments are extra fees an HOA may charge when reserve funds are insufficient. These most commonly occur after an emergency or natural disaster, but they can also be caused by budget deficits, unforeseen repairs, new amenities or improper HOA financial management.

If your community association finds itself short on funds, it will issue a special assessment to all homeowners in addition to your regular annual or monthly fees. Since it’s an unforeseen cost for the residents as well as the HOA, it can often create a lot of pushback and frustration from your homeowners, who may not have the extra funds to comfortably accommodate the additional charge.

Why Are Special Assessments Necessary?

Although frustrating, HOA special assessments are necessary. While special assessments shouldn’t be frequent, budget predictions are never going to be consistently accurate over the period of five to 10 years. Inflation, local community changes and many other factors cause yearly costs to fluctuate, and it’s not uncommon for an HOA to find itself short of its predicted reserves.

Natural disasters and emergencies also can’t be predicted, so special assessments are unavoidable in the long term, even with the best HOA financial management. Without these assessments, amenities, fixtures, and communal areas may remain in disrepair or deteriorate over time. These quality declines will also elicit complaints from residents, so special assessments are often the best course of action despite homeowner dissatisfaction.

How Often Should You Charge Special Assessments?

Although special assessments are never entirely avoidable, they shouldn’t be frequent. Communities with strong HOA financial management will have reserves they can utilize in case of emergencies or natural disasters, providing a financial buffer that helps avoid extra assessments. As such, your HOA should only charge special assessments on rare occasions.

If a special assessment does become necessary, your HOA board should try to work with homeowners to establish a more budget-friendly payment plan. Instead of charging a large lump sump in one month, homeowners are more likely to be able to afford a smaller amount due monthly over the course of six months to a year.

At The Management Trust, we assist Aurora, CO, HOA boards with handling difficult tasks such as implementing and collecting special assessments. We also provide comprehensive HOA financial management that can help you more accurately calculate future costs and avoid having to issue special assessments to residents. 

More than 1,500 communities throughout the country trust The Management Trust to get the job done right, including dozens throughout the Aurora, CO, area. To find out more about our community management services, call The Management Trust at 303-750-0994 or fill out our online contact form today.