What is the difference between a Special Assessment and Regular Assessment?
Homeowner’s Associations (HOAs) and Condominium Associations (COAs) are responsible for maintaining many items in the community. Although every community is different, this might include items like:
- The community’s common areas
- Overseeing that the community is up to code for building and safety regulations
- Providing some services
- Complying with community standards.
To ensure that all of these can be completed and run smoothly, the association relies on the fees paid by residents.
The fees that are collected fall into two different categories: Regular Assessments and Special Assessments.
- Regular Assessments
When buying a home in an HOA or COA, there will always be some sort of regular assessment. These are standard fees that are collected on a regular basis. The schedule for them to be collected is outlined in your governing documents. Typically, this will be monthly, quarterly, or annually.
How are these fees determined?
The Board of Directors establishes an annual budget based on anticipated expenses which is used to determine the amount of assessments. These fees cover the projected costs of day-to-day operating costs of the community. This may include items such as utilities, insurance, landscaping, etc. Once the total cost is figured, then the cost is divided between all the homeowners.
As a note, sometimes it is not an equal division of cost. Reviewing the governing documents can explain specifics. Some condominiums divide the cost based on square footage. It all depends on the guidelines outlined in the governing documents for your community.
Are these fees mandatory?
Yes. All homeowners of an HOA or COA are required to pay their regular assessments. For a homeowner to miss this payment can result in legal actions and late fees that can lead to liens and possible foreclosure.
Is this fee always the same?
Unfortunately, this fee will typically have an increase over time. As the cost of living goes up, so does the yearly budget for the community. This directly affects the regular assessment fee. Based on your state laws, the increase is usually capped and can only be raised a little at a time.
Overall, a regular assessment fee is very predictable as there will always be fees for the routine objectives of the HOA or COA.
2.Special Assessments
Special Assessments are completely different. Just like in your daily life, there are always expenses that come up that are unexpected. These are not the typical day-to-day expenses in the yearly budget. Although the HOA or COA try to keep a reserve for these expenses, sometimes this is not always possible.
How are these fees determined?
Special assessments are usually for specific projects or needs. This might include items like repaving parking lots, an emergency repair from a natural disaster, or improvements for the community that are not covered in the budget. The total amount needed is determined based on the cost of the project which is typically based on bids or contracts received from third party vendors or contractors.
The majority of the time the community will obtain a bid for the specific project that needs to be completed (i.e new roofs). The total cost is divided between each of the homeowners that live within that community. Although some Board of Directors will require that the fee be paid in one payment, it is more likely that the Board will collect these fees in monthly or quarterly payments over a period of time.
Are these fees mandatory?
Yes. The specifics of a special assessment are different for every community and outlined in the governing documents. These fees typically require a majority vote from the Board of Directors.
Is this fee always the same?
No. These fees are unpredictable. They sometimes come as a surprise to homeowners as they are unexpected expenses for the community. Special Assessments also do not have a cap. Sometime special assessments are very large.
Although special assessments are necessary, they can sometimes be challenging for homeowners.
To help avoid the burden of a special assessment there is an option to add special assessment insurance to your homeowner’s policy. For only a few dollars a month, this insurance can cover some or all of these unexpected fees. Especially in a natural disaster, having this piece of mind is priceless. There are a couple of stipulations depending on your insurance company. For further explanation, check out next week’s blog post regarding this specific insurance coverage.
Condominiums and neighborhoods with an HOA/COA can be very beneficial for a homeowner. When buying a home with an HOA/COA, I would suggest diving into two specific documents to review the association’s regular and special assessments. The first would be the Covenants, Conditions, and Restrictions (CC&Rs) if you live in an HOA or the Master Deed if you live in a COA. 90% of any questions that you have about the assessments, rules of the community, and guidelines for the property are going to be in these documents.
The second document would be the Bylaws. Although there may not be as much information on assessments in this document specifically, it will break down the approval process and the requirements needed for the Board of Directors.
These documents are typically written by attorneys and sometimes hard to read. I highly recommend going through these documents before purchasing your new home. You will further understand more about the ins-and-outs of the assessments.
After reading this, I hope that you better understand the difference in Special Assessment and Regular Assessment fees. They are very different but are both a big part of a Homeowners or Condominium Associations. For any further information or explanation, you can always contact Kentuckiana Property Management (KPM). KPM is very well versed in the world of HOAs or COAs and dedicated to helping homeowners with their neighborhoods. We are a management company that is committed to ‘Taking the Stress Out of Property Management with Expert Homeowners Association and Residential Rental Management.’
