Responsible community associations will recognize their fiduciary responsibility to ensure a community’s reserve fund will be adequate for future capital expanses. HOA managers will seek to understand, clarify, and update the reserve fund based on a well-prepared, extensive reserve study. While most community association covenants require a reserve fund, many association leaders can be overwhelmed by what a reserve study entails.
What is a reserve study?
According to Reserve Advisors, a reserve study is an in-depth evaluation of a property’s physical components and an analysis of its reserve funds. Based on a thorough on-site inspection, a custom reserve study details anticipated replacements or repairs to common-area elements and recommends annual reserve funding to cover capital expenditures for the next 30 years.
While each community may differ in amenities and other site components, a checklist for an on-site inspection will likely include the following: common area elements like parking lots, roads (for gated communities), fencing, retention ponds, and landscaping; and amenities like swimming pools, tennis courts, clubhouses, and playgrounds. The evaluation of the community’s physical components will address the age of facilities, useful life, and replacement costs. According to Back, James, Mansour & Company, P.C., a completed reserve study should reflect costs in terms of the current economy and take into consideration the fact that older items require more maintenance. Furthermore, an accurate reserve study will factor inflation and be updated every 3–5 years.
What are the steps to completing a reserve study?
The bottom line of reserve studies is that they need to be one of the most thorough and current documents a community association maintains. As Duane McPherson, division president at RealManage, a San Rafael, Calif., association management firm, tells HOA Leader, “The reserve study should contain every single component the association has, and it should be as detailed as it can possibly get.”
Shalon Clevenger, HOA Management Consultant