Reserve studies are integral to the health and sustainability of any community association, but they aren’t just a capital planning tool – they play a direct role in influencing condominium and HOA property values.
What is a Reserve Study?
Primarily acting as a long-term capital planning tool, reserve studies evaluate the condition of an association’s common assets, estimate their remaining useful life, and predict the cost to repair or replace each asset. This information is compiled into a 30-year funding and expenditure plan, ensuring adequate reserves are available to complete repair and replacement projects on time.
Regular inspections of community infrastructure, combined with a reliable financial plan, make conducting reserve studies incredibly important for any association, with numerous states enacting condo and HOA reserve study requirements. The health of condo and HOA reserve funds is reliant on a stable and equitable capital plan, and the physical health of any community depends on an awareness of each asset’s maintenance needs. But reserve studies influence more than just an association’s finances and repair and replacement schedules – they have a direct impact on condo and HOA property values.
How Reserve Studies Influence Property Values
Well-managed reserve funds and the timely maintenance and replacement of assets ensure that associations remain attractive and functional, which is a key factor in maintaining and enhancing property values. Amenities and infrastructure that are properly maintained make condo and HOA units more attractive to potential buyers, and reserve studies help ensure that communities have funds available to keep the property in top condition. Associations that effectively manage reserve funds and maintenance may also find themselves in a better position to undergo property or amenity upgrades or additions, both of which can contribute to increased property values.
Conversely, the failure to maintain adequate reserve funds can lead to a decline in property values, as neglected maintenance and the inability to cover repair and replacement costs will make the property less appealing to potential buyers. In fact, Fannie Mae and Freddie Mac released a list of blacklisted properties that are ineligible for lending, due in part to deferred maintenance, structural issues, and the failure to conduct reserve studies or fund reserves properly. When an association fails to adequately fund reserves, instead relying on special assessments, it becomes more likely that homeowners will be unable to afford their loans. If potential buyers are unable to secure loans due to an association’s inadequate reserve funds, property values will ultimately fall.
Real-World Impact: All Eyes on Florida
In a recent article from the New York Post, it was reported that condominiums over 30 years old have seen property values decrease by 22% in the last two years, dropping 1-6% each month since July 2024. These dramatic decreases have two main causes: underfunded reserves and deferred maintenance.
Following the tragic collapse of Champlain Towers South in Surfside, FL, in 2021, legislation was introduced that requires condominiums of three or more stories to conduct structural integrity reserve studies (SIRS). These communities are also mandated to fund reserves for all structural assets and are no longer able to waive or partially fund reserves. These requirements revealed the fact that many condo associations had been deferring critical maintenance, due mostly to underfunded reserves after years of inadequate reserve funding.
Because these associations are now mandated to fund reserves in accordance with their SIRS, Florida condos have seen an average reserve contribution increase of 146%, with some condos issuing special assessments in the $10’s of thousands of dollars to catch up on deferred maintenance. As lenders, insurers, and potential buyers have become more aware of the consequences of underfunded reserves, financially troubled communities will continue to have difficulty selling units.
Historically, buyers have not had the understanding to ask many questions regarding an association’s reserve fund status. But with growing awareness, buyers may begin asking more detailed questions before making an offer, such as:
- When was the association’s last reserve study, and how often is it updated?
- Are there any upcoming major projects, and are reserves available to pay for them?
- Is there a history of special assessments?
- Is there a history of deferred maintenance?
While this dilemma is most apparent in Florida, it serves as a warning for associations nationwide.
Financial Preparedness and Proactive Maintenance
Reserve studies offer two crucial benefits that can help condos and HOAs alike avoid declining property values, instead maintaining or enhancing the value of the community. The first is the ability to be financially prepared. By understanding how much a project will cost and when it will occur, along with guidance on appropriate annual reserve contributions to cover future expenses, boards and managers can approach reserve funding and annual budgeting in a way that reflects reality. This allows for associations to utilize the second benefit of reserve studies – proactive maintenance.
Deferred maintenance often turns minor issues into larger, more expensive emergencies, and is most commonly the result of inadequate reserve funds. With properly funded reserves, associations can complete projects on time, allowing the property to operate smoothly and safely while keeping project costs at a minimum.
In tandem, the financial preparedness and ability to approach maintenance proactively that reserve studies offer work to maintain or enhance property values. A community with well-maintained common areas and a history of stable dues and reserve contributions will always be more attractive to buyers. Without a reserve study in hand, condos and HOAs run the risk of declining property values due to underfunded reserves and deferred maintenance.
The Value of Proactive Planning
Reserve studies are far more than a financial planning tool – they are a cornerstone of responsible community management and a critical factor in preserving and enhancing property values. By following a clear roadmap for future repairs and replacements, boards and managers become empowered to maintain their infrastructure proactively. Because the consequences of underfunded reserves are tangible and far-reaching, affecting everything from resident finances to marketability and lending eligibility, the safeguards provided by reserve studies are indisputable. Communities that prioritize regular reserve studies and maintain adequate funding will always make potential buyers feel more confident in putting their best offer forward. In today’s real estate landscape, a proactive approach to reserve funding is not just a best practice – it’s a competitive advantage.
