7 FAQs About Doing a Reserve Study in Your Homeowners Association
June 2, 2014 / by HOA Manager
“What is a reserve study and how do we do one?” This is an important question that board members should be asking in your homeowners association. If you don’t know the last time a reserve study was done in your association or why you should even do one, then you’re in the right place to learn the answers to frequently asked questions about reserve studies.
1. What is a reserve study?
It’s a study of the basic components the homeowners association is responsible for. This could include roads, roofs, painting, swimming pool upkeep, landscape replacement etc. Really, any long term assets that requires periodic maintenance.
2. Why do a reserve study?
It’s actually required by law and will keep you out of jail! Seriously though, as a board member it’s crucial to know that the law requires a study to be updated each year, and every three years a physical inventory of the items to be taken. For example, if the cost of oil jumped, then the asphalt figure needed in reserves to repave the roadways would change. The reserve study needs to be relevant to today.
3. Who does the reserve study?
Anyone can do a reserve study, however it’s usually a good idea to seek the help of a professional reserve specialist, especially if the homeowners association is a fairly sophisticated development. This shifts the liability from the board members to the specialist.
4. What time of year should a reserve study be done?
The reserve study process should start 4-5 months before the beginning of the new budget year, depending upon the complexity of the Association components. Since the board has to approve the reserve study it’s important to consider when and how often they meet. If they meet once a month it will be easier to get approval. When they meet once a quarter you’ll need to plan ahead to have the reserve study finished and ready to put in front of them.
5. How much does a reserve study cost?
It’s actually very reasonable. On average, the first two years that require only an update costs about $400 to $600. On the third year when a specialist should come on site, it may cost somewhere between $1,200 to $1,800.
6. What are the consequences of not doing a reserve study?
If a board fails to do a reserve study it will begin to see a domino effect. The homeowners association will start to fall into disrepair resulting from bad management that keeps people out of touch with what’s physically going on in the community. Board members can also be sued because they have broken the law by not doing a reserve study. It makes no sense NOT to do one.
7. How can HOA manager help?
An HOA manager can help guide the board and has the experience to help boards work through a reserve study. The board doesn’t have to reinvent the wheel. A reserve study can act as a management tool, allowing the HOA manager and board members to sit down and review it together to evaluate the health of the association and where it stands.
A reserve study is an important element for a successful homeowners association. It helps plan for the future, but also keeps the community a safe and attractive place to live.
Topics: HOA Management, Reserve Funds