RealManage Insight

Special Assessment Fees vs Reserve Fund Contributions

by Amanda Causey on Nov 20, 2014 10:10:23 AM

Because community expenses are privately funded, HOA communities and similar types of planned neighborhoods must develop an effective strategy for meeting them. Most communities employ one of two strategies to pay for expected and unexpected expenses: using special assessment fees, or using money from the community reserve fund, which should be funded under the guidance of a community management professional. Eventually a community will want to make a decision, special assessment fees vs reserve fund contributions. Below is an overview of how special assessment fees compare to reserve fund contributions for paying expenses.

Preference of Residents

In most HOA communities, residents prefer to contribute a set amount of money to the reserve fund on a scheduled basis instead of being hit with special assessment fees. Ultimately, making reserve fund contributions allows residents to financially plan for the year ahead, and feel assured that special assessment fees would only be used in the most dire circumstances.

Paying Planned Expenses

A major reason why community management professionals recommend communities to have reserve funds is to pay for major, planned expenses, such as roof replacement for common buildings. When the reserve fund receives enough contributions, these types of major expenses can be afforded without the hassle of passing and trying to collect special assessment fees.

Paying High-End Costs

The higher the expense, the more painful it can be for residents to pay when an assessment fee is used. Unless a community is wealthy and money is no object to its residents, using reserve funds to cover high-end costs creates the least stressful situation. Community management professionals often recommend paying high-end costs with the reserve fund when possible.

Availability of Funds

Special assessment fees are often enacted when a community lacks enough money in reserve to cover an expense. However, as the old saying goes, “A bird in the hand is worth two in the bush.” Passing a special assessment fee does not always guarantee that the community will have the money it needs when it needs it. If the reserve find is well-funded, the money is already there.

Conclusion

When it comes to paying community expenses, there are several reasons to use reserve fund contributions instead of special assessment fees, including: the preference of residents, the ease of paying planned expenses, the ease of paying high-end costs, and the availability of funds. If your community does not have a plan for contributing to the reserve fund, developing and implementing one will give your neighborhood greater financial leverage when paying expenses.

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