HOA Reserve Studies

What is the Purpose of an HOA Reserve Study?

Responsible homeowners associations use reserve studies to avoid financial emergencies. Reserve studies are budget planning tools used to ensure that property owners are not faced with emergent special assessments when common property requires repair and replacement. Professional reserve analysts evaluate all commonly owned components of a property to forecast life expectancy of communal assets. Typical commonly owned elements vary from roofs, asphalt, concrete to bike racks, fences, and clubhouses. Evaluating the age and condition of these components, analysts are able to estimate repair costs over a projected thirty year period. With this information the HOA board can fund reserves in anticipation of repairing and replacing common elements. This means financial stability for the association and no costly surprises for homeowners.

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What do Reserve Studies Include?

An HOA reserve study includes complete analyses of both the physical and financial status of communal property. The physical analysis includes a description of commonly owned components along with a description of the typical repair and replacement needs of each element. Reserve analysts include a discussion of the normal and expected remaining life of each component, too. Photographs are included as a reference for each item. The financial section of a reserve study typically includes a component view and a cash flow view. The component view is a static representation of the life of each component and the funds required to repair and replace each. The cash flow view is fluid and includes an examination of contributions, expenditures, and future useful life. Skilled analysts depend on visual inspections, information provided by the homeowners association, and their extensive knowledge of local repair and replacement costs to build reserve studies.

Do Reserve Studies Require Updating?

Legally, many HOAs must update their reserve studies. In several states, like in Maryland and Virginia, homeowners associations are required to maintain up to date reserve studies. Reserve studies should be updated regularly, sometimes even more often than is required by state statutes. It is widely accepted that full reserve studies, including site visits, should be conducted every three to five years and that reserve studies should be reviewed and updated annually. Other times homeowners association boards should consider updating their reserve studies are when inflation has driven up the cost of repair and replacement and before and after major projects. Updating a reserve study before a major project will ensure that the community is fiscally able to afford the project while maintaining a healthy reserve. Reviewing a reserve study after completing a major project will allow for a rebalance of reserve funds based on the cash flow view of funding.

HOA Reserve Study - Is it Worth It?

In states requiring reserve studies, hiring a professional reserve analyst is a must. Did you know that the financial institutions who offer mortgages and refinances often require updated reserve studies, too? There is no reason for routine repair and replacement to become a financial emergency. Homeowners want to avoid surprise special assessments. HOA boards have a responsibility to the homeowners they serve. Maintaining and updating reserve studies is worth it for everyone.