how much hoa fee is too much

How much HOA fee is too much? This is a question that board members, homeowners, and potential buyers ask a lot. While paying fees does come with the territory, it does not mean that associations can charge exorbitant amounts as they please. Similarly, homeowners should not expect their HOA to charge low fees, as fees that are too low can also spell certain consequences.


How Much HOA Fee Is Too Much? Calculations Explained

Living in a homeowners association comes with financial obligations. When one buys a house in an HOA community, they agree to abide by these obligations, which mainly consist of paying regular dues or fees. Homeowners associations rely on these fees to fund various expenses in the community.

An HOA calculates homeowner fees based on the annual budget. The HOA board is responsible for preparing this budget and anticipating the expenses for the year. From there, the board divides the costs among all homeowners. The exact formula for calculating HOA fees will depend on the association’s governing documents.

But how much is too much for HOA fees? Unfortunately, no dollar amount will serve as an indicator for fees that are too high. There are several variables to consider, including economic factors and personal finances.


How Much Is the Average HOA Fee?

Homeowners association fees or dues can vary widely from one community to another. Location, the nature of common amenities, and even the number of homeowners can influence the calculation of dues. That said, homeowners in the United States pay an average of $200 to $300 monthly on HOA fees.


Is There an HOA Fee Increase Limit?

Is There an HOA Fee Increase Limit?The board has a fiduciary duty to act in the association’s best interests, putting the HOA first above all else. It must set HOA fees to meet the needs of the HOA — even if it means raising annual fees. For instance, if the association needs a specific type of insurance coverage, the board must adjust HOA fees to accommodate the insurance premium accordingly.

That said, there may be a limit to how much an HOA board can raise dues. This limit is dependent on two things: state laws and the association’s governing documents.

In Arizona, associations can’t set fees that are more than 20% greater than the previous year’s fees without first getting approval from the membership (A.R.S. 33-1803). Not all states have caps on dues increases, though. The association’s governing documents may also place limitations on fee increases.


How Often Do HOA Fees Increase?

It is hard to determine the average HOA fee increase across the United States. However, HOA fees tend to go up every year. This is understandable, considering the fluctuations in economic factors, such as inflation, cost of goods, and wages.

Annual increases, though, may not apply to all associations. Some HOA communities manage to maintain a reasonably consistent amount if there are no changes in the budget. Others cut costs to keep fees low, presenting its fair share of downsides.


Why HOA Fee So High? Exploring the Possibilities

While it is normal for homeowners to question their HOA fees now and then, they should not discount the potential factors contributing to high fees. Here are just some of the things that can affect HOA dues.


1. Vendor and Management Fees

Homeowners associations rely on vendors and management companies to keep operations going. These third parties, though, can raise their prices and tend to do so every year. Additionally, economic factors — such as the rising cost of materials, labor costs, and inflation — can affect both the HOA and its vendors.


2. Insurance Premiums

Insurance policies are a must for most associations, and providers have occasionally increased their premiums. This can lead to the HOA raising its dues to cope with the change.


HOA reserve fund3. Reserve Contributions

Many associations maintain reserve funds to meet the cost of future repairs and replacements. An association may increase its annual dues to keep this fund at an adequate level.


4. New Projects or Improvements

If an HOA has a new project in the works, it will need money to pay for it. Thus, homeowners may see an increase in their HOA fees.


States With the Highest HOA Fees in the US

According to data from the Foundation for Community Association Research, the states with the highest HOA fees are as follows:

  1. Missouri ($469 a month)
  2. Arizona  ($448 a month)
  3. Oregon ($402 a month)
  4. Colorado ($401 a month)
  5. Maryland ($401 a month)
  6. Tennessee ($400 a month)
  7. Mississippi ($396 a month)
  8. Arkansas ($394 a month)
  9. Wyoming ($393 a month)
  10. Virginia ($392 a month)


Advice to Buyers: What Is a Reasonable HOA Fee?

Homeowners association fees are a top consideration among potential buyers, but how does one know what’s reasonable?


1. Check Financials

What Is a Reasonable HOA Fee?First, buyers should check the association’s financial records, including financial statements and the annual budgets. This will help them gauge the financial health and stability of the HOA. Potential homeowners would not want to buy into a community hemorrhaging money. Checking the HOA’s finances will help buyers understand if the association is overspending or staying within its budget.

Buyers should also ensure the HOA sets money aside for capital improvements, reserve contributions, and other long-term expenses. When an HOA diligently budgets for these things, it lowers the likelihood of special assessments. It indicates that the association has sufficient funds for anticipated and unanticipated costs.


2. Compare Mortgage Payments

Second, buyers should take their mortgage into account. HOA fees disproportionate to their mortgage would not make for a sound investment. Having to pay $1,000 in monthly HOA fees compared to $1,500 in monthly mortgage payments seems unreasonable. Of course, everyone has a different level of financial means, so buyers should consider their financial capacity.


3. Watch Out for Low Fees

People always ask, “How much HOA fee is too much?” However, they don’t stop to think about the opposite.

HOA fees that are too low can also be a red flag. It signals that the HOA might not have enough money for its expenses in the long run. In the end, the common areas will suffer, and so will the homeowners. The HOA may impose a special assessment to meet its needs or have property values plummet. Should the latter happen, homeowners will have difficulty getting a return on their investment.


4. Look for Professionally Managed HOAs

Finally, buyers should favor professionally managed HOAs while it is not necessary. These HOAs tend to be better than self-managed ones because experienced and trained people are at the helm. This minimizes the likelihood of mismanagement.


How Much HOA Fee Is Too Much? Answered!

It is challenging to set an exact amount that’s deemed too high when it comes to HOA fees. That said, state laws and the association’s governing documents play a role in determining this. Homeowners and buyers should examine all factors when assessing whether HOA fees are too high. In the same vein, board members should remember that they must act in the association’s best interests at all times.

Clark Simson Miller offers expert financial management services to HOAs and condos. Call us today at 865.315.7505 or contact us online to learn more!