Reducing Risk of Needing a Special Assessment
“Special assessment” is a phrase no homeowner likes to hear. They know that this means either a one-time payment or potentially an increase in future dues. But putting off special assessments and not addressing financial concerns can be even more detrimental. It is better to explain to homeowners why the assessment is needed and how it will benefit the community.One of primary goals your board should be focused on is Reducing Risk of Needing a Special Assessment.
You can’t predict when unexpected expenses will occur – that’s what makes them unexpected. But the HOA can take steps to help reduce risk of needing a special assessment by being proactive in their activities throughout the year.
- Conduct an annual reserve study. This will help the HOA to better understand its finances and how much it has saved for maintenance, projects, and emergencies. If savings are low, the board can look into adjusting annual fees to build up the reserve.
- Invest in appropriate insurance coverage. Although insurance may not cover all costs, it can significantly reduce the portion owed by the HOA should an issue arise. Carefully read the fine print and compare plans to optimize coverage for the best price.
- Stay on top of maintenance. Regularly inspect the grounds, amenities, and community buildings to identify potential issues. Address any concerns in a timely fashion so problems don’t become worse and cost even more to repair than if they would have been taken care of earlier. Plan ahead for upgrades and renovations so the budget can reflect projected expenses.
- Create a solid budget. When determining the budget each year, look at spending from previous years as well as any upcoming expenses. Look for areas to cut costs and allow for more money to be put toward the reserve. Being strategic with spending can help reduce financial strain.
- Read the governing documents. There are guidelines that dictate when and how special assessments can be executed. Make sure the board knows how a special assessment can be properly applied before assuming certain expenses will be covered.
Special assessments can be a necessary evil. Be upfront with homeowners and explain why these fees are needed and how they will be used. Although not everyone will be happy, when they understand the rationale and how the issue impacts them, they may be more accepting. Giving homeowners financing options or payment plans can also reduce the burden of additional expenses. Take the time to answer homeowner questions, thoroughly explain plans, and work together to make the HOA community a better place.