Professionally managed communities must budget for HOA management fees. These fees cover various services, but they can differ in amount depending on the scope and type of community. Understanding the breakdown of these fees is essential to choosing the best option for the association.
What are HOA Management Fees?
Every homeowners association is governed by a set of volunteer board members. These board members collect dues, manage finances, enforce rules, and maintain common areas. But, as volunteers, board members don’t always have the time or expertise needed for successful community management.
Hiring a professional HOA management company can greatly ease the board’s workload. Additionally, these companies employ qualified managers and staff who can support day-to-day operations. Of course, their services don’t come free. In exchange, boards must pay homeowners association management fees.
HOA Management Fees vs HOA Fees
It is important to distinguish HOA management fees from HOA fees. While both sound similar, they cover distinct expenses. Here’s how these two fees differ:
- Who Pays Them. Homeowners pay HOA fees, otherwise known as regular dues, to the association. Meanwhile, the association pays HOA management fees to a professional management company. The association uses money collected from homeowners to cover management fees.
- What They Cover. Regular dues cover the association’s operating expenses and reserve contributions. In contrast, management fees cover the services that professional firms deliver to communities.
What do HOA Management Fees Cover?
Ultimately, the scope of work will depend on the agreed-upon contract between the association and the management company. That said, HOA management fees typically pay for the following:
- Financial services (dues collection, invoice processing, budget planning, financial reporting, and reserve management)
- Maintenance and upkeep (routine inspections, repair coordination, and maintenance schedule planning)
- Vendor management (vendor selection and vetting, performance evaluation, and progress monitoring)
- Rule enforcement (regular inspections, violations tracking, notice delivery, hearing scheduling, and follow-up)
- Administrative support (owner communication, board meeting preparation, and website management)
- Board education (training, recommendations, and advice)
- Legal support (compliance with state laws and governing documents, attorney correspondence, and guidance)
Breaking Down HOA Management Company Fees
There are several costs that go into management fees. These include the monthly management fee, the setup fee, the transition fee, the early termination fee, and other extra fees.
1. Monthly Management Fee
This is the base fee that covers the firm’s services. It’s an ongoing fee, usually paid monthly or yearly, that the contract clearly outlines. Pricing structures can differ, with some companies charging based on the number of units and others charging on a percentage basis.
2. Setup Fee
The typical HOA management fee does not normally cover the setup fee. The setup fee is also known as the initiation fee or the onboarding fee.
This is a one-time fee that HOAs pay when a new owner buys a home in the neighborhood or when a new contract is executed. Setup fees cover the cost of establishing new accounts, reviewing and turning over documents, and updating administrative access credentials.
Keep in mind that state laws may regulate initiation fees. For instance, in North Carolina, HOAs may charge an initiation fee only once, at the initial sale of the property. Associations can’t charge this fee every time the property is sold. Of course, this applies specifically to covenants in an HOA.
3. Transition Fee
When the association changes management companies, a transition fee usually applies. The fee covers the cost of transferring documents and credentials, updating records, and other related expenses. Another term for this is the exit fee.
4. Early Termination Fee
When an association cancels the management contract before its intended expiration, the company will usually collect an early termination fee. This covers the loss of revenue the company would otherwise have expected to earn for the remainder of the contract.
5. Extra Fees
Most companies package their services at a standard rate. For added services outside the scope of the agreement, extra fees typically apply. For example, the contract might require the manager to attend three board meetings, with additional fees for anything beyond that.
How are HOA Management Fees Determined?
While it is difficult to guess exactly how companies calculate their rates, a few factors generally affect prices. These include service levels, community size, community type, and the extent of amenities.
Service Levels
The scope of services directly impacts HOA management fees. Associations that demand more extensive or complex solutions should expect higher amounts. In comparison, associations that can get by with only a few services can expect lower fees.
Full-service management is the most comprehensive. It usually includes on-site services and inspections, making it the most expensive, too. Below that is remote management, which includes all the full-service solutions but with no on-site support.
Some communities only need financial services, with the board overseeing other aspects. Financial-only support can be cheaper because it involves only select tasks, such as dues collection, budget preparation, reserve planning, and financial reporting.
Finally, some companies offer consulting services. For these services, companies typically charge a flat, one-time rate in exchange for advice or recommendations.
Size of the Community
In general, smaller communities are easier to manage, so they don’t require as much work. As a result, HOA management fees are lower. In contrast, larger communities have more ground to cover and residents to oversee, leading to higher fees.
That said, management services scale well. This means that large communities may be able to secure discounts on per-unit rates.
Type of Community
The community type can also influence HOA management fees. Condo association management fees tend to be higher because these communities have unique needs. Managers must understand building systems, infrastructure, and building codes. Maintenance is also more complicated thanks to shared components.
Single-family HOAs, on the other hand, can expect lower per-unit costs. With detached homes, homeowners are responsible for the maintenance and upkeep of their individual properties, which reduces the management company’s workload.
Extent of Amenities
The more amenities a community has, the more work is involved. Because of this, associations with a large number of amenities or complex amenities might drive up management costs. Services like concierge, security, and private maintenance, which are common in luxury high-rises, can also affect professional fees.
How Much Does HOA Management Cost?
Several factors can impact the cost of professional management. That said, the average HOA management fee ranges from $10 to $35 per unit per month for full-service management. Before choosing a company, boards must shop around and vet candidates to ensure the best possible option.
Communicate Adjustments
Before hiring a professional management company, boards must first determine if there’s room in the budget for HOA management fees. If there isn’t, consider amending the budget to include these fees, but that would likely also entail raising owners’ dues. To avoid complaints, boards must clearly explain why an increase is necessary and how a management company can benefit the community.
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