One of the main challenges for HOAs is how to improve the annual budget. HOA boards are constantly faced with the rising costs of expenses, which leads them to increase homeowners’ monthly assessments. If more associations only took the time to examine their existing policies, though, they will discover viable solutions that will help lower HOA dues. If you want to design a budget that will lower HOA assessments, here are cost-effective measures to implement.
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7 Cost-Cutting Tips to Lower HOA Assessments
With economic factors such as inflation, it’s not surprising that operating costs increase each year. Nevertheless, if HOAs are able to look at their budget and expenses, they may be able to find areas for improvement. Here are cost-cutting tips that can be effective in reducing HOA assessments.
1. Examine Existing Vendor Contracts
Vendor contracts are one of the largest potential improvement areas for lowering the budget and assessment fees. Does your HOA have old or expiring contracts with unfavorable terms?
Ideally, vendors should be contracted each year so that the HOA can renegotiate for better terms.
If you have trusted vendors that deliver high-quality service, try to lock in your current prices with them. Meanwhile, if you are not happy with the service you are getting, it’s time to seek bids from new vendors.
You want to pick HOA vendors that deliver better service at more reasonable prices. So, even if you are cutting costs, your HOA will still be in capable hands.
2. Eliminate Wasteful Spending
Wasteful spending is something that can hurt the budget of many associations. If you want to reduce HOA fees, the board needs to sit down and assess its expenses. Determine whether each expense was essential for the community, or whether it was just an unnecessary expense.
For example, if you have drought-resistant landscaping, there is no need to water them as frequently as non-native plants. So, having your landscaper come in to water them each week just becomes an unnecessary expense
As you audit the previous year’s budget, try to come up with a list of areas where you can reduce expenses. You can then use this to adjust your upcoming budget. HOAs that do this will be amazed at the additional funds they can get simply by eliminating wasteful spending.
3. Examine Your Utility Bills
How much is your HOA paying for electricity, gas, and water each month? If the amount seems high — to the point that you have to increase HOA fees — you may want to consider introducing energy-saving practices. If the HOA has the budget for it, you can invest in energy-efficient technologies such as solar water heaters, solar street lamps, and motion-activated light switches.
However, there are still a lot of ways to reduce your utility bills without having to spend on gadgets. You can implement some HOA rules such as turning off lights and fans when a common area is unoccupied or shutting off faucets when water is not needed. These small practices, when done consistently, can make a significant impact in lowering your budget and assessment fees.
4. Review Your Insurance Coverage
Having adequate insurance coverage is one of the best ways to protect HOA funds. However, you also don’t want to be paying more in premiums or deductibles than what is necessary. Consult with your HOA management company or insurance provider to get the best rate for your association.
5. Balance Employees vs HOA Volunteers
For larger communities, it may be necessary to hire staff to take care of the community. But, does your association really need to have one or several full-time employees?
Typically, full-time employees cost additional capital in terms of benefits, and this can become expensive for your HOA.
Keep in mind that the HOA board can always call on homeowners to volunteer. You can utilize the talents and skills of your homeowners by setting up HOA committees. Many residents will gladly offer their services to the community if that meant being able to reduce HOA fees. Not only will this improve the budget, but it also fosters a sense of community in your HOA.
6. Defer Non-Essential Community Projects
If money is tight, the HOA board should push back non-essential community projects for at least a year or two. For instance, a new playground would be nice but it is not absolutely necessary to have. You can use this opportunity to save some money and avoid having to increase assessment fees. When the HOA is in a better financial position, you can start up on these projects.
Keep in mind though that there are some projects that cannot be pushed back. You will still have to push through projects like a major roof repair; otherwise, you might sacrifice the aesthetics and property values of the community. Again, if funds are limited, try to allocate them for essential community projects.
7. Reduce Reserve Contributions
HOAs that want to lower HOA assessments might consider reducing monthly contributions to their reserves. However, this is very risky and you should avoid doing so as much as possible. Reserve funds serve a special purpose and not having enough could lead to massive financial problems later on.
Only associations that have fully-funded reserves should consider scaling back their contributions (if absolutely necessary). Even so, conduct a new reserve study first to confirm whether your association has enough reserve funds for emergencies and unexpected expenses.
The Cost of Lowering HOA Assessments
Homeowners accept that monthly assessment fees are necessary to keep the community running. However, they are not too thrilled when the HOA decides to increase HOA fees due to rising operational costs. In an effort to keep homeowners happy, HOA boards will try to find ways to lower HOA assessments. While there is nothing wrong with cutting back on expenses, you must also consider the potential costs that come with lower HOA assessments.
The most important point is that lowering HOA assessments is simply not sustainable. You are just delaying the inevitable. If you lower HOA fees to an unreasonable amount, the association will not have enough money to operate properly. This can put you in debt. And in that case, you will have no choice but to raise HOA assessments or even levy a special assessment. The amount will be even higher than what you initially planned — which will not make homeowners happy. So, there is no winning in this scenario.
It’s important to understand that increasing HOA assessments don’t always have to be a bad thing. It’s a way for you to secure the growth of your community. If HOA fees are put to good use, homeowners will be able to reap many benefits, including higher property values. So rather than focusing on lower HOA assessments, the HOA should focus on better budgeting and financial planning. You can still find ways to adjust HOA dues without it having to significantly impact the homeowners.
Finding a Balance Between Lower HOA Assessments and Maintaining Your Community
Cost-cutting measures can significantly improve your HOA budget, which, in turn, helps lower HOA assessments. By analyzing your expenses and eliminating wasteful spending, your association can save a lot of money — even without really doing anything drastic. Just remember to find a balance between lowering HOA assessments and maintaining your community. Your attempts to lower HOA assessments should never come at the cost of your community and its members.
- How to Lower Fees in Your HOA
- How To Calculate HOA Assessments
- HOA Budget Planning: A Guide To Doing It Right