One of the important things to remember about the determination of Homeowner Association (HOA) fees is that no two associations are alike. Which means their regular assessments will be different, since they are based on the specific needs, obligations, and objectives of the homeowners’ association. Don’t fall into the trap of comparing your assessment with another association’s assessment, because another HOA will have vastly different factors driving its budget. Assessments are not set (or at least, they shouldn’t be), in relation to what some other HOA assessments are. Assessments should instead be determined in relation to the association’s annual budget for common expenses. Your association assessments are a product of the association’s annual budget apportioned according to your governing documents.

There are always very specific factors that contribute to the budget that ultimately establishes how assessments are determined. Some country club communities for instance, require membership in the country club in addition to their standard HOA fees. Other communities, which offer a great many services and amenities to residents, should expect that those benefits come in exchange for higher assessments. Ultimately the budget is the key. What is the association’s spending plan for a year?

Establishing the annual budget for the HOA, allows assessments for individual owners to be determined. It is simply a mater of adding up all the common expenses (the annual budget), and dividing that total across all members, using a pre-established formula specified in the governing documents. The budget it key.

That being said, there are two methods commonly used to develop a budget that will determine association fees. They are ‘historic trend budgeting’ and ‘zero sum budgeting’.

Historic Trend Budgeting

Historic trend budgeting is just what it sounds like – basing the proposed budget on previous budgets. All expenses for the upcoming period are identified by their category and history, after a review of several years’ history. It is common to assign more weight to the budgets from the most recent years, because it’s assumed that budgets of the most recent years are most solidly in alignment with current expenses and anticipated costs. This review should allow for the development of a budget that approximates those of prior years, and assumes most of the same expenses.

Zero Sum Budgeting

In zero sum budgeting, the preparers of an HOA budget will look beyond history in favor of starting a new budget from scratch. This is accomplished by simply writing down anticipated expense categories and amounts for the coming year. This approach can be a very useful exercise for the board members preparing the budgeting, because the process forces them to be mindful of the spending decisions they have made in the past and their value to the association in the future. Zero Sum Budgeting assessing proposed expenses with fresh eyes, rather than simply relying on history.

Expenses that may have been incurred by your HOA in the past, may not be relevant to the most current period, and can thus be ignored and left out of any plan for the future. The flip side of that coin is that by not consulting past years’ budgets, your planners may overlook certain expense items which should be included, but which did not occur to anyone during the planning sessions.

As described above, the first step toward the calculation of HOA assessments for any given year is to first establish the HOA budget for that same period. To do this, either historic trend budgeting, zero sum budgeting, or a combination of the two should be used to establish the spending plan for the year. Calculating individual assessments is then simply a matter of dividing that total cost among members in the manner specified in the HOA governing documents, which may or may not be an equal division among all members.

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