Budget Time: How Much Should You Charge for Assessments?

Posted by Andrea Drennen, CMCA on October 6, 2016


How to calculate regular assessments for your Condo or HOA

October officially marks budget season for many community associations across the country. And with budgets comes increases in regular assessments. That means not only is this a bad time for community managers and board members, it's also challenging to your homeowners, and can lead to major blowups over increases.

One thing we have seen time and again is communities that fail to plan their budget properly. Some communities increase assessments based on an arbitrary value like cost of living, or a percentage dictated in the community documents. Still more communities choose not to raise assessments at all - not because they don't need to, but because the board doesn't want to make an unpopular decision.

But perhaps the most common issue we have seen is homeowners or condo association boards that simply do not know what they need to charge for assessments, and so they carry on with one of the above two options.

So let's break it down:

A community association's budget needs to predict three basic things: Expenses, Reserves and Income.

At the end of the day, the amount of income the community generates has to cover the expenses and the reserve contribution. That’s why proper budgeting is so important. Nobody wants to pay higher assessments, including the board members, unless it's absolutely necessary.

At the same time, you need to make sure your community is covered for the coming year. Because the only thing worse than raising assessments is levying a special assessment mid-year.

Miscellaneous Income

Not all of your association's income may come from owner assessments. There are many other sources of income including late fees, vending machines, guest fees, parking passes and rental income that you will need to take into account.  Any reliable source of income should be considered with an appropriate amount entered into the draft budget.

Look at the past year’s budget, the actual income generated by the community year-to-date and other known sources of income to identify the miscellaneous income. Like with expenses, this should be entered into the draft budget on a monthly basis in the months the income is actually going to be received.

Calculating Assessments

Once the miscellaneous income is entered you can then calculate the overall amount of income needed from the homeowners. This, in turn, determines the amount of the assessments each homeowner has to pay.

The calculation of the homeowner assessment amounts is typically done on the annual total column like the example below:

Homeowner Assessment Calculation
Total Budgeted Expenses $202,400
Total Reserve Contribution + $28,000
Total Miscellaneous Income - $5,200
Total Homeowner Assessments = $225,200

Assuming this is a 200 home HOA where everyone pays the same amount, the calculation to determine each homeowners monthly assessment would be to take the total assessments, divide by number of homes, and divide that by the number of periods your assessments span:

Individual Homes Calculation
Total Homeowner Assessments $225,200.00
Total Number of Homes ÷ 200
Annual Assessment Per Home $1,126
Months in a Year ÷ 12
Monthly Assessment Per Home $93.84

So each homeowner would need to pay $93.84 monthly in our example above for the community to have the income to cover the budgeted expenses and reserve contribution.

Consider Delinquencies

If the community has a significant delinquency level, say something above 8% of the monthly overall homeowner assessment income, you might need to plug in an allowance of extra income so the community is not short on income to cover its budgeted expenses and reserve contribution. That means the homeowners might have to pay something higher than in our example above to generate enough income to cover the budgeted expenses and reserve contribution.

Surplus Money

Do NOT take into account any surplus (left over) money in the bank. It is always more prudent to prepare the budget as if there was no money left in the bank from any previous year.

This fiscally conservative budget preparation method allows for unexpected expenses without the need to go back to the homeowners to hit them with a special assessment.


Using this formula, calculating the amount your community should charge for assessments is the easy part of preparing your budget.

With this level of documentation, you should easily be able to explain to homeowners how you arrived at the new assessment amount, and even show them the math. I can't guarantee this will make your homeowners happy about an increase, but it least it can help prevent a total meltdown.


*Image credit: Austin Kirk via flickr

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