(and why HOA assessments don’t vary by the same percentage across units)
By: Helsing Admin
When an association is said to have “variable” HOA assessments it means that all homes in the community do not pay the same amount of assessment per month. HOA assessments may vary as outlined in the governing documents by unit size, by the number of cars, by sub-meter readings, or by any number of other items. However, normally when an association has variable HOA assessments it is because of unit size – and the rest of this article is directed solely at assessments that vary by unit size.
Generally, when there is a variable HOA assessment not everything is shared based on unit size. Rather, those things from which the owners of larger units are expected to derive a larger share of usage are calculated based on unit size, and everything else is share equally (all units paying the same amount). In addition, the items that are based on unit size are generally costs pertaining to the roof, exterior painting, property insurance, and utilities (if part of the assessment). This is because for the past several decades the California Department of Real Estate has considered those to be reasonable arrangements in new developments – and it is those reasonable arrangements that find themselves in association documents. However, older associations or associations that have changed their documents may have other criteria so it is important that you do check the documents. In addition, you will generally only find variable HOA assessments if the difference in assessments would be greater than 10% between what the largest unit and the smallest unit would pay. Please note, this is the difference in assessments not the difference in unit sizes. The reason for this is that variable assessments can be both confusing and costly for the association to calculate so unless there is some significant unfairness to not sharing equally – equal assessments are preferred.
So, how are they calculated? Once the total budget is calculated, the total expense for the upcoming year is typically divided by 12 to get the monthly expense. Then, those line items that are variable are subtracted from the total expense leaving just the expenses for the line items that are shared equally. Those fixed items are then divided by the number of units. So, if we had $200 of fixed costs divided by 2 units the variable cost would be $100 a unit. (To keep the math simple I am only using a two-unit condominium – but the principle is the same without regard to units).
The variable HOA costs are then divided by the total number of square feet, so let’s assume we had $200 of projected expenses and 3,000 SF total in all the units. You then take the $200 (fixed costs for every unit) and add to it $.066667 a SF times the number of SF in that unit to get the variable cost. Then add the variable and fixed costs together for the unit in order to the total monthly assessment for that unit. This is shown in the table below.
| Total Fixed Cost | $200 | |||
| Total Variable Cost | $200 | |||
| Total SF of all units | 3000 | |||
| Variable Cost per SF | 0.066667 | (Variable Cost/Total Unit SF) | ||
| Fixed Cost per Unit | 100 | (Fixed Cost divided by number of units) | ||
| Total | ||||
| Unit | Fix | Variable | Total | |
| Size (SF) | Cost | Cost* | Assessment | |
| Smaller Unit | 1,200.00 | $100.00 | 80 | $160.00 |
| Larger Unit | 1,800.00 | $100.00 | 120 | $240.00 |
| * Square feet (SF) X Cost per SF | ||||
One other important explanation belongs in this article. In an association where all the assessments are equal, if there is an increase of 5% from one year to the next – every homeowner would expect an increase of 5%. When there are variable assessments, however, the homeowner expects the same thing to happen but it generally does not. With variable assessments either the larger or the smaller units will normally get a different percentage increase (or decrease) in assessments. Some of the homeowners will find that very confusing so an explanation as to why is in order.
In our example, if the variable costs increase in proportion at a rate greater than the fixed costs, the smaller units will get a greater percentage of the increase than will the larger units. This is displayed in the chart below using the same data as above (I am calling the budget shown above as the “base year” in order to compare it to the new assessment. Please note that the only change was that the variable costs doubled.
Variable Costs Increase Greater Than Fixed Costs
| Total Fixed Cost | $200 | |||
| Total Variable Cost | $400 | |||
| Total SF of all units | 3000 | |||
| Variable Cost per SF | 0.133333 | (Variable Cost/Total Unit SF) | ||
| Fixed Cost per Unit | 100 | (Fixed Cost divided by number of units) | ||
| Unit Size (SF) | Fix Cost | Total Variable Cost* | Total Assessment | Base Year Assessment | % Change | |
| Smaller Unit | 1200 | $100.00 | $160.00 | $260.00 | $160.00 | 62.50% |
| Larger Unit | 1800 | $100.00 | $240.00 | $340.00 | $240.00 | 41.67% |
* Square feet (SF) X Cost per SF
Both the large and the small units received an increase but compared to the previous year the smaller unit percentage increase was greater. This does not mean that if the variable HOA assessment increases in all cases the smaller units will get a bigger percentage – because that is a factor of what portion of the total costs are variable vs. fixed. In fact, if the variable costs are a smaller percentage of the total costs the results could have been the other way around. The point is – the percent change will almost never be the same between units of different size.
Again, using the same base year and the same hypothetical association – let’s assume that the fixed costs increase greater than the variable costs. Again, the change is not proportional. In this case, the small units get the brunt of the increase, but if the share of variable costs compared to fixed costs was different those changes would also be different.
Fixed Costs Increase Greater than Variable Costs
| Total Fixed Cost | $400 | |||
| Total Variable Cost | $200 | |||
| Total SF of all units | 3000 | |||
| Variable Cost per SF | 0.066667 | (Variable Cost/Total Unit SF) | ||
| Fixed Cost per Unit | 200 | (Fixed Cost divided by number of units) | ||
| Unit Size (SF) | Fix Cost | Total Variable Cost* | Total Assessment | Base Year Assessment | % Change | |
| Smaller Unit | 1200 | $200.00 | $80.00 | $280.00 | $160.00 | 75.00% |
| Larger Unit | 1800 | $200.00 | $120.00 | $320.00 | $240.00 | 33.33% |
The point of the above explanation is not to indicate that smaller units will always get a larger percentage of increase – because if I had a different hypothetical association that situation could well be reversed. The point is to simply show how the math works using simple explanations readers can share with others when this situation presents itself.
Articles are for advertising and general information by The Helsing Group, Inc. They are not intended to provide legal advice, but rather reflect our opinions as Community Association managers and Consultants. Readers should not act on issues raised in our newsletters or websites without consulting legal counsel.
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The Helsing Group, Inc.
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