Does Your Community Need a Reserve Study? Part II
The Necessity of Reserve Studies for HOA Communities
Reserve studies serve many purposes. First, they are necessary to pursue good financial health for your community. These studies evaluate the status of your association's reserves.
When you let your reserve funds remain underfunded, you risk falling short on funds when the need for significant repairs or replacements arises. And the only way to know whether or not you're underfunded is to have a reserve study done.
In essence, reserve studies help your association circumvent financial crises. By ensuring funding for HOA projects, your board will not need to impose special assessments or take out a loan. Both those alternatives, after all, aren't popular choices among homeowners.
A reserve study can also indirectly provide for future members of the association. Current members use the HOA's common areas and facilities regularly, which will result in wear and tear. Over time, as the damages accumulate, they will need replacing or significant repairs. In a way, contributing to a reserve fund is the homeowners' way of paying for the maintenance of the community.
Furthermore, board members are responsible for prioritizing the association's needs above all else. Failing to conduct a reserve study can be argued as a breach of your fiduciary duty, putting you and the association at risk of potential liability.
The Reserve Study Specialist
Reserve studies are often difficult to perform since they involve many moving parts. That is why associations should never opt for a do-it-yourself reserve study.
Instead, your association should hire an experienced professional to conduct an HOA reserve study. Look for someone certified as a Reserve Specialist by the Community Associations Institute (CAI). You can also find one through the Association of Professional Reserve Analysts.
Frequency of Reserve Studies
Some states require homeowners associations to maintain a reserve fund and conduct regular reserve studies.
To determine how often to conduct a reserve study, you must examine your state laws. Some states have specific requirements for the frequency of the survey. In Florida, as of December 31, 2024, an Association may no longer refuse to fund (may not waive) or underfund the reserves for items required in a Structural Integrity Reserve Study.
You should also check your governing documents to see if it has specific reserve study requirements. But, even if no such provisions exist in your state or bylaws, it's wise for every HOA to perform one every so often to help your association stay financially healthy and allow your board to make smarter financial decisions.
Reserve Fund Study Cost
Several factors can influence the HOA reserve study cost, such as property size, location, and the complexity of your common elements. The type of study you need will also dictate the price. A reserve study can range anywhere from $500 to $10,000.
How much does a condo reserve study cost? Generally, condominiums pay more for reserve studies because of how their common elements are set up. Condos typically have more stories and shared walls than single-family home associations.
Does a Community Need a Reserve Study?
The short answer is yes. Not only is it mandatory in many states, including Florida, but a reserve study also helps gauge your association's current and future financial condition. With a reserve study, you can determine how long your assets have left and how much it will cost to replace or repair them, ensuring you stay caught by surprise and grapple for funds when the time comes.
Reserve planning is just one of the services many HOA management companies offer communities. Contact Condominium Associates today for assistance!
