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How Often Do You Recommend Doing a Reserve Study?

April 28, 2023 / by HOA Manager

Reserve studies are a critical tool for HOAs to help ensure that they have adequate funds available to cover future repairs, replacements, and other significant expenses. These studies provide a comprehensive financial analysis of an HOA's reserve fund, including an inventory of the property's common elements, estimates of their remaining useful life, and projected costs for their repair or replacement.

Check with State Requirements

Most states have specific requirements for reserve studies, which HOAs must comply with. However, the specific requirements may vary depending on the state or local regulations. For instance, some states require an HOA to conduct a reserve study every year, while others mandate it every three years. It’s essential to check with your state's regulations to ensure that your HOA is in compliance.

Comply with Governing Documents

In addition to state requirements, HOAs must also comply with the requirements of their governing documents. Governing documents typically require HOAs to maintain a reserve fund, and in some cases, they may specify the percentage of the annual budget that must be allocated to the reserve fund. HOAs must follow these requirements and ensure that the reserve fund is adequately funded to cover future expenses.

Accurate Reflection of the HOA

HOAs must also ensure that their reserve studies are accurate and up-to-date. This includes regular physical inspections of the property to identify any areas that may require attention, such as roofs, HVAC systems, and other common elements. These inspections are essential in ensuring that the reserve study reflects the current state of the property accurately.

Realistic Funding Strategy

Another essential aspect of reserve studies is the funding strategy. The reserve study should include a funding plan that outlines how much money needs to be added to the reserve fund annually to meet future expenses. The funding strategy should be realistic and take into account any anticipated changes in the property, such as planned renovations or expansions.

Can an HOA board conduct the reserve study?

It's essential to hire a professional reserve study provider to conduct the study.

While it’s possible for an HOA board to conduct its own reserve study, it’s generally not recommended. Reserve studies require expertise in several areas, including engineering, construction, and finance, and it's essential to have a qualified and experienced professional prepare the study.

Professional reserve study providers have specialized knowledge and tools to conduct a comprehensive analysis of the HOA's reserve fund. They have experience with different types of properties and can identify potential issues that an HOA board may overlook.

In addition to the expertise and experience required, conducting a reserve study can also be a time-consuming and complex process. A professional reserve study provider typically has a team of experts who work together to prepare the study, which can take several weeks or even months to complete.

Lastly, an independent reserve study provider adds an additional level of transparency and impartiality to the process. This helps to build trust and confidence in the reserve study results among the HOA members and ensures that the study is not biased in any way.

It's also important to ensure that the reserve study provider complies with industry standards and guidelines. For instance, the Community Associations Institute (CAI) has established best practices for reserve studies that provide a framework for conducting comprehensive and accurate studies.

Other points to consider when doing a reserve study

Legal Requirements: Some states may require homeowner's associations to conduct reserve studies periodically, while others may not. HOA boards should check their state's laws and regulations to ensure they are complying with any requirements.

Funding the Reserve Fund: In addition to conducting a reserve study, it's also important for HOAs to properly fund their reserve fund. HOAs should consider establishing a funding plan that ensures they have enough money in the reserve fund to cover future expenses.

Updating the Reserve Study: Reserve studies should be updated regularly to reflect any changes to the property, such as repairs or improvements. This ensures that the reserve fund is accurately reflecting the property's current condition and future needs.

Communication with Homeowners: HOAs should communicate the results of the reserve study with homeowners to keep them informed about the property's financial health. This can help build trust and confidence in the HOA board and ensure that homeowners understand the need for funding the reserve fund.

Using the Reserve Study as a Planning Tool: Reserve studies can also be used as a planning tool to help HOA boards make informed decisions about future expenses and funding needs. HOA boards should consider using the reserve study as a tool to help them plan for the future and make strategic decisions about the property.

How an HOA management company can help with a reserve study

HOA management companies can play an important role in helping HOAs with their reserve studies. Here are a few ways that HOA management companies like Hignell can assist:

Finding a Qualified Reserve Study Provider: HOA management companies can help HOAs find a qualified reserve study provider by leveraging their network of industry contacts and knowledge of local providers. This can save HOAs time and effort in finding a reputable reserve study provider.

Coordinating the Reserve Study: HOA management companies can coordinate with the reserve study provider to ensure that the study is conducted efficiently and effectively. This includes scheduling site visits and coordinating with the HOA board and homeowners to ensure minimal disruption.

Analyzing the Reserve Study Results: Once the reserve study is completed, HOA management companies can help analyze the results to help the HOA board understand the financial health of the property. This includes reviewing the study's findings and making recommendations for funding the reserve fund.

Developing a Funding Plan: HOA management companies can also help develop a funding plan for the reserve fund based on the results of the reserve study. This includes analyzing the property's future needs and developing a plan for allocating funds to the reserve fund to ensure that it is adequately funded.

Communicating with Homeowners: HOA management companies can help communicate the results of the reserve study with homeowners and build trust and confidence in the HOA board. This includes explaining the study's findings and recommendations and helping homeowners understand the importance of funding the reserve fund.

Reserve studies are a critical tool for HOAs to help ensure that they have adequate funds available to cover future repairs, replacements, and other significant expenses. HOAs must comply with state requirements and their governing documents, ensure that their reserve studies are accurate and up-to-date, and have a realistic funding strategy in place.

And while it’s technically possible for an HOA board to conduct its own reserve study, it’s generally not recommended. It's essential to hire a qualified and experienced reserve study provider to ensure that the study is accurate, comprehensive, and impartial.

HOA management companies can be valuable partners in helping HOAs with their reserve studies. By leveraging their expertise and industry contacts, they can help HOAs find a qualified reserve study provider, coordinate the study, analyze the results, and develop a funding plan to ensure the financial health of the property.

By doing so, HOAs can budget effectively for the long-term and ensure that they’re financially prepared for any future expenses.

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Topics: Reserve Funds, HOA Accounting, HOA Maintenance