Community Reserve Studies – What you need to know

Community Reserve study how to for an HOA and Property Manager

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?

  1. Hire an expert. Industry experts agree that a professional engineering firm will provide the most reliable reserve study. While the cost for an expert can range in the thousands, it pales in comparison to the cost of not having a viable reserve fund.
  2. Know your community. During the reserve study, many questions will be presented to association leaders. Having a firm grasp of original installation and construction dates, as well as projected useful life will go a long way in easing this process.
  3. Do your homework. While most managers understand the importance of researching experts before hiring them, some associations might think that the reserve study process can simply be handed off once the expert is hired. This is not prudent. Rather, as Back et al. suggests, seek your own replacement estimates for comparison.
  4. Update every 3-5 years. An annual review of the study is recommended, but at least every 3 to 5 years, a professional should be consulted to identify missing components, changes in life span, or shifts in prices.

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


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