As a board member, you have a fiduciary responsibility to your community to act in every homeowner’s best interest. While this can be difficult, especially in a position of governance, it’s imperative that Boards maintain this obligation.
Reserve studies are a way to fulfill this responsibility. However, a fair number of associations do not commission a reserve study because they are fearful of the results it may present. Questions such as “What if we are underfunded” and “What if there are critical projects that we are currently unaware of” may influence the Board’s decision to commission a reserve study as it could be perceived that such results are a direct reflection on them. Or, they may not want to potentially open a can of worms that is the unknown.
However, the decision to not commission a reserve study out of fear directly contradicts your fiduciary obligation to act in your community’s best interest. Regardless of your association’s current situation, a reserve study is the first step you should take in righting any ship that may be off course. By documenting the current conditions of your property and its finances, and providing a path to sustained financial and physical health, the “bad news” a reserve study could bring will always be counteracted by a plan for remediation.
Imagine putting off going to the dentist for over a year. You may continue putting off going to the dentist because you are fearful of what they will find, whether it be cavities, staining, or a deeper issue. But while you’re putting off the services due to fear, the issue remains and more than likely gets exponentially worse as time progresses. In the long run, this results in increased deterioration and more money spent on fixing the issue at hand.
The same is true when an association waives a reserve study in hopes that community life can continue as normal without conflict. While it may be scary for a Board to realize they might be underfunded, their community is in physical distress, or that there is a large-scale project that needs immediate attention, it is vital to face these challenges head-on before they get worse. Your roofs do not care if your community is positioned to take on replacement – they will fail when they fail. If the association does not address a pressing issue, further issues will most certainly arise.
If an association is underfunded or not properly maintained, a reserve study helps prioritize near-term projects and presents a path to adequate reserves. The reserve study report is not the end all be all, as your consultant can work with your Board to ensure the study meets the specific needs of the community. Our team can work with you to adjust expenditure thresholds, to incorporate historical replacement schedules, and more to ensure the reserve study meets your specific needs. While it is hard to find out that a community is in physical or financial distress, a professional reserve study will always present a path forward.
At Reserve Advisors, we work with our clients to help them develop a path forward. If an association is underfunded, our industry-leading team of experts can help evaluate alternate funding solutions that support your community’s capital planning needs. If need be, we help our clients evaluate the utilization of bank loans, special assessments, reserves, or a combination of the three to fund future projects. All of these options can be incorporated into the reserve study report, and your consultant will be there with you every step of the way.
If a reserve study presents insufficient reserve funds or overdue maintenance, it can be challenging to convey such news to homeowners. Keep in mind such issues are not a reflection of the Board, as in most cases these issues stem back several years or more. Additionally, regardless of the study’s findings and recommendations, it’s vital to give homeowners additional insight. This becomes especially important when you have residents who may be sensitive to annual fee increases.
As residents of your community, these folks deserve transparency as to both the physical and financial condition of the property. After all, it will be their dues that are affected by the Board’s decisions, and they should be provided an explanation as to each decision made.
Because the Board is made up of neighbors, friends, and community members, sharing unfavorable news can be uncomfortable or intimidating for the Board, which is why we’re here to help. Our reserve study consultants are available to attend a Board and/or Ownership meeting to explain our findings and to alleviate potential concerns over adjustments to annual reserve contributions.
Your consultant will set the expectation to owners regarding what projects need to be done, and why, saving Boards the burden of being the bearer of decisions that might be viewed as biased or unfavorable. Because your consultant is from a third party, they are not interested in anything but your association acquiring and maintaining adequate funding and addressing capital projects in a timely manner.
It’s crucial that reserve studies be presented in a way that’s both easy for homeowners to understand and that sheds a positive light on the current situation. Your reserve study is just the beginning of your community’s journey towards prosperity, and commissioning the study is step one. In order to most effectively communicate the reserve study to homeowners, the Board (and Management) should read over the report first, understand its implications, and work with your reserve study provider to make sure the final report meets the needs of your community.
At Reserve Advisors, we strive to provide your community with a path forward. No matter the report’s findings and recommendations, we’re confident in our ability to help your community achieve long-term financial and physical health.