What Is a Special Assessment? Condo and Co-op Buyers Beware

What is a special assessment? It’s an added fee that can crop up for owners of a condo, co-op, or home belonging to a homeowner’s association (HOA).

Trust me on this: As vice president of my own condominium’s board of directors, I can assure you no one likes getting wind of a special assessment—which, put plainly, is a charge that homeowners must pay to fund a renovation on the property or to replenish an underfunded reserve.

Even just uttering the words “special assessment” makes my neighbors cringe! Let’s take a look at why.

What is a special assessment?

Most condo or HOA homeowners pay monthly fees. These fees typically range from $100 to $700 per month, but they can vary greatly based on what they cover. Some fees only cover exterior maintenance, while others are more comprehensive, and may also cover utilities (water, trash, sewer) and even security guards.

Typically, a portion of the condo fees is allocated to the association’s reserve fund—essentially a rainy-day fund for larger, occasional expenses such as paving, re-roofing, replacing water heaters, exterior painting, or hallway flooring.

Yet unexpected expenses can also occur. Every once in a while, something big gives out, like a roof or an elevator, and homeowners insurance may not cover the costs.

If your association’s reserve fund is low or depleted when disaster strikes, you and your fellow homeowners will have to pay a special assessment. In some instances, assessments are tacked on to the monthly condo fees in small amounts until the debt is paid off; in other cases, the assessment is a one-time charge that must be paid by each homeowner as a lump sum.

If you live in a well-run condo association or HOA, your community should have enough cash set aside in reserve funds to cover emergency repairs. But, alas, not every condo board is managed well.

Naturally, this raises the question: How much money belongs in the reserve fund? Unfortunately, there’s no magic number. It can range significantly depending on a number of factors, such as the number of homes in the community and their ages.

The good news? There is a formula, so to speak.

Many condo boards order an annual or biannual “reserve analysis study,” where a qualified engineer performs an architectural and engineering study of the entire complex—including a projection of the remaining life of items like the roof, boiler, or elevator—and reports back to the board with a recommendation on how large the community’s reserve fund should be. Though it’s not an exact science, this professional estimate is generally a good benchmark.

How much is a special assessment?

The fee depends on the cost of the repairs. For example, let’s say your condo building’s roof caves in and the board immediately needs $30,000 to install a new roof. If there are 40 unit owners, each owner would be required to pay about $750. Often the precise fee will vary, depending on the size of your condo or house. Generally, the larger your property is, the higher your portion of the assessment will be.

What’s my likelihood of receiving a special assessment?

If you’re searching for clues for whether a special assessment is in your future, you’ll want to review your association’s financial statements. These documents which will show you how much money is currently in the reserve fund. If the fund is relatively low, you may be at risk of a special assessment in the event of an emergency expense.

Also, take a look at the governing documents of your development. These are called “restrictive covenants”—also known as the Declaration of Covenants, Conditions, Restrictions, and Easements (CC&Rs), and they usually outline procedures that the association must follow in order to levy a special assessment. In some cases, the entire community (not just the board of directors) votes before there’s an assessment.

In addition, some states have laws that restrict the amount of money an HOA can collect in special assessments in a calendar year.

Can I protest a special assessment?

Technically, you can protest a special assessment by filing a complaint with your board. However, if you don’t have buy-in from your fellow homeowners, your request is likely to be denied, in which case you’ll have to pay the fee. Also, bear in mind that rejection rights usually don’t apply to assessments for projects that are necessary for the health and safety of residents.

Your best odds of a successful outcome is when there’s a special assessment on the table for an unnecessary project, like adding a swimming pool or a fitness center, in which case, other unit owners may have your back in helping you revoke the assessment.

The bottom line

Special assessments are an inherent part of being a homeowner in a condo or HOA. No one likes them, but sometimes they’re necessary—and you just have to cope with the circumstances.

Article by Daniel Bortz