HOA Dues Vs. Assessments: What’s the Difference?
When you manage a homeowners association (HOA), one of your key responsibilities includes collecting money that is owed to your clients. For most HOAs, the majority of income comes in the form of dues and assessments. These fees support the association’s day-to-day operations, pay for big projects and upgrades, and build the HOA’s reserve fund.
But what is the difference between dues and assessments? If you’re new to HOA management, these terms might confuse you. Both dues and assessments refer to fees that residents pay to the HOA board. However, the circumstances surrounding each type of fee determines whether it qualifies as a due or as an assessment.
As you grow your HOA management business, it’s vital to understand the subtle points of association finances. By learning the difference between HOA dues and HOA assessments, you’ll have a firm grasp of this important concept. Even if you’ve been managing HOAs for some time, it always helps to have a refresher about HOA business language.
Learn about how HOA dues and HOA assessments are different and why this matters to your HOA management business and your clients.
Why the Difference Matters
Managing the finances for an HOA can be complicated. Although association management software with accounting features, such as CINC Systems, can streamline your financial duties to your clients, it’s still vital that you understand the basic concepts surrounding HOA money management.
Dues and assessments are both ways in which the HOA earns income. Both types of payments come from the homeowners who own property and live in the association. However, dues and assessments are paid differently. In most cases, the money is also used for different costs and expenses.
As an association manager, you need to learn how your clients process dues and assessments differently. This will make it easier for you to collect the money owed to the association. It also helps you track account balances when you’re doing the books for your clients.
Finally, understanding the difference between HOA dues and HOA assessments can improve your relationship with your client’s members. As the association manager, you’re often the “authority” who provides official answers when residents have questions. Learning about HOA dues versus assessments gives you more information that you can share with your clients’ residents.
It’s worth mentioning that some HOAs may use different terms for their internal business operations. However, in the majority of cases, “dues” refers to the regular membership fees paid by the homeowners who belong to the association. Dues can be paid monthly, quarterly, or annually.
Sometimes, dues are a flat rate, so everyone in the association pays the same amount. Other times, dues are calculated individually based on the property’s estimated value, square footage, home size, number of driveways or garage spaces, or other variables. Dues are usually established by the association board at the beginning of the fiscal year.
The amount owed may remain at a constant rate or periodically rise based on economic factors such as inflation or changes to local tax law. However, members know how much they are expected to pay. Dues aren’t issued as a surprise.
What Do HOA Dues Pay For?
In general, association dues cover the HOA’s basic operating costs, including your own manager salary or retainer fee. Dues also pay for:
- Maintenance for Common Spaces: If the association has shared common spaces, dues pay for the upkeep. This could include lobbies, elevators, laundry rooms, mailrooms, gyms, swimming pools, and other community areas within the association grounds.
- Services and Utilities: Along with utility bills for common areas, HOA dues provide the association members with regularly scheduled services such as landscaping, waste disposal, and private security.
- Insurance and Permits: Depending on the HOA’s local law, the association may be required to carry certain types of liability insurance as well as permits for projects and events. HOA dues cover these costs.
- The HOA Reserve Fund: A portion of all dues goes into the association’s reserve fund, which acts as the organization’s financial backbone and ensures its continued success.
In HOA financing, assessments refer to special one-time fees that are levied in addition to the regularly scheduled dues. Assessments typically occur when there’s a budget shortfall or unexpected expenses. Other times, an association will charge an assessment to pay for special projects or major repairs as voted on by the board.
Smaller assessments can be fulfilled by a single payment. However, depending on the amount of the assessment, some HOAs may offer their members a payment plan to receive the assessment in installments. A portion of the assessment can also be temporarily added onto the regular dues paid by each homeowner.
What Do HOA Assessments Pay For?
Assessments pay for the association’s unexpected costs. For example, an HOA may levy assessments for the following:
- One-Time Landscaping: Although regular maintenance for the community’s lawns and shrubs is covered by dues, assessments can pay for one-time landscaping costs, such as trees that need to be removed or the installation of drought-resistant plants.
- Major Repairs: If a common-use building experiences a collapsed roof, a flooded basement, fire damage, earthquake damage, or other problems that need sudden repair, assessments will cover these costs.
- Facility Upgrades: Assessments also pay for upgrades of shared facilities. This can include new washing machines and dryers, new gym equipment, new entryway gates for parking structures, or other upgrades that benefit everyone in the association.
- Community Improvement Projects: New blacktop on roads, security lights, solar panels, or other projects that improve the community will also be covered by HOA assessments.
Use CINC Systems for HOA Dues and Assessments Accounting
Whether you’re collecting dues or assessments for your HOA clients, or both, CINC Systems can help. Our association management software includes easy web integration, allowing you to create online payment portals where association members can pay everything online.
To see how CINC Systems can help your association management company collect HOA dues and HOA assessments, request a free software demo today.
Related Frequently Asked Questions
- How Can Association Management Companies Working with HOA/COAs Benefit from Association Management Software?
- Top 10 Tips When Managing HOA Accounts
- How Association Managers Benefit from CINC’s Accounting Software
- What Is Association Management Company Accounting Systems?
- Is My Association Management Accounting Data Safe When Using Software Tools?