Understanding Who is Spending Your HOA Assessment Money
Almost on a daily basis, a homeowner in one of our associations asks the same question: “What are you spending my money on?!” I have come to realize that one of the biggest misconceptions in association management is that the management company collects and dictates how the HOA funds are spent. In this blog, I would like to break down how assessments are used and how they benefit you as a homeowner.
First, to clear up any misconceptions, your management company does not get to collect all of your money and spend it however they see fit (and if they are, you should probably fire them). Assessment money is collected through the management company and deposited into an operating bank account that belongs to the Association. The decisions regarding how the collected money is used belong to your association's volunteer Board of Directors. While your management company will track every dime spent, the board dictates how much should be spent on landscaping, new projects, and everything else that keeps your community functioning. The best way to explain this process is in the chart below:
The association members pay assessments to the management company; which are deposited in a bank operating account under the association's name. Any spending from the operating account is based on what was budgeted by the Board of Directors to pay for association related expenses. The money is then disbursed to vendors to pay for services that they performed (e.g. landscaping). In a nutshell, an annual budget is prepared by the board with the assistance of management, and then money is collected through assessments from the homeowners to pay for costs associated with running an HOA.
So why is this important to know? The general trend from phone calls and emails is that many residents think that we as a management company, determine how much money should be collected and decide where and how the money is spent; which could not be further from the truth! Of course, we get paid for our services, but that amount is set through our contract and covers things like accounting, inspection services, emergency calls, vendor coordination, and many other things that a volunteer board does not have time to do.
The point of all of this is for you to know that your association does have a plan for your HOA assessment money, and the purpose of all of it is to keep your home values up. If you would like to know more about how your assessment money is spent, consider attending the board meetings and ask the management company for a breakdown of costs. You may be surprised at how much work goes into running your association.
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