As awareness regarding reserve studies continues to grow, many associations that have not yet commissioned one are asking themselves, “do we need one?” While this question is easy to answer in states such as Florida and Maryland which recently put into place legislation requiring reserve studies, in states without a legal requirement, the question remains.
While reserve studies may not be legally required in most states, the fact of the matter is that commissioning a reserve study is best practice for any HOA or condominium association. Because of the complicated nature of maintaining a community both physically and financially, and the consequences that stem from deferring maintenance or reserve funding, the benefits of reserve studies are indisputable.
One of the primary responsibilities of the board of directors is to protect, maintain, and enhance the assets of the community association they serve. To accomplish this objective, associations must develop multi-year plans that help them understand their long-term budget needs and, at the same time, anticipate and responsibly prepare for the timely repair and replacement of common area components such as roofs, roads, mechanical equipment, and other portions of the community’s common elements.
In most cases, these tasks are not able to be accurately achieved without professional guidance. Reserve studies lay out a comprehensive, 30-year plan that does just that. By inspecting each common element and determining useful lives and remaining useful lives, your reserve study consultant is able to determine when components will need repair or replacement, and in which order these projects should take place.
Of course, these projects are often a significant financial undertaking. Acting primarily as a capital planning tool, reserve studies allow associations to gain an understanding of both their current and ideal future reserve fund needs. Along with the physical inspection, reserve study professionals dive into the current financial status of your association’s reserve funds, and using the data collected during the physical inspection, determine how the association should go about funding reserves and projects in the future.
With a firm understanding of current supply chain and market conditions and the ability to determine how much each capital project will approximately cost, this information is used to lay out a 30-year capital plan for both expenditures and reserve fund savings, both of which take inflation into account.
If an association is not currently adequately funded, a reserve study will act as a detailed blueprint for the association to follow which allows for funding levels to reach the point where necessary maintenance does not have to be deferred and/or additional assessments are minimized. This ensures that the community’s value does not depreciate, as well as the overall safety of the community and its residents.
However, whatever the current financial or physical status of a community may be, a reserve study provides endless benefits. Without a reserve study on hand, an HOA is flying blind into its future. To set its course, the HOA has a fiduciary responsibility to hire an independent reserve study company to produce a well-documented plan that benefits current and future boards.
Property managers come and go, board members frequently change, and an existing reserve study is there to help new decision-makers understand the logic or reasoning behind earlier choices. A professional reserve study company will be available to discuss its work, the methodology used, and considerations that went into the study years after it was conducted. Additionally, reserve study specialists can support HOA boards by providing periodic updates to the original reserve study, ensuring the association remains on track.
So the answer to this question is, put simply, yes. Community associations of any type will find that a reserve study strengthens the community’s current and future physical and financial health. Running a community is hard work, but you never have to go it alone.