HOA Reserve Study: How often should you do it?
HOA Reserve Studies are an essential part of managing a community association. Deciding how often your HOA should update a Reserve Study is just as important as how you spend HOA funds. Maintaining common areas and staying on top of repair and replacement costs requires ongoing financial review supplemented by regular physical inspections. Working with professionals and following an updated Reserve Study will help safeguard your HOA, limit the risk of unexpected costs, and keep your residents satisfied that their HOA dollars are working for them.
What is an HOA Reserve Study?
A HOA Reserve Study is a comprehensive analysis of the financial health of an association and the common areas HOA members share. Common areas are those parts of a community for which the association has responsibility and could include a neighborhood swimming pool, roofing on community buildings, landscaping through the community, building exteriors, parking areas, and more. The study focuses its inspection on two main areas: the physical state of the common areas and the financial state of the HOA reserve funds.
The Physical State of The Common Areas
This looks at what kind of upkeep or repair is needed, the projected lifespan of the common areas, and when repair, replacement or major maintenance is necessary.
The Financial State of the HOA Reserve Funds
Does the association have enough allocated funds to undertake the work required to keep the community’s common areas in a good state of repair? Each HOA has allocated funds for common areas, and this amount should be reviewed and updated frequently to avoid unforeseen costs and to avoid special assessments.
Why are Reserve Studies important?
Reserve Studies are a crucial component of a well-functioning HOA. Fund management is the number one job of the Board, and residents expect full transparency when it comes to how their dollars are spent and invested. By performing a HOA Reserve Study on an annual basis you can adapt their funding allocations to account for fluctuating costs and changing circumstances. Much can change over the course of a year, severe weather or dips in the economy can greatly affect what needs to be done in and around the HOA property. It’s essential to review and work with an updated reserve study whenever possible to keep unexpected repairs at bay.
How Often Should You Update Your Reserve Study?
Each state has its own provisions on HOA Reserve Studies. Some stipulate that a Reserve Study be done annually, while others require a study every three to five years. Other states only go as far as offering suggestions on how often they should be done but fall short of mandating a timeframe.
To ensure the best use of HOA funds and the ability to react responsibly to anticipated events, an annual update of a Reserve Study is the recommended best practice. At the very least, a review of the current Reserve Study should be performed each year and a new updated Reserve Study performed every three years.
How to Perform an HOA Reserve Study
Because updated Reserve Studies can be time consuming and comprehensive, it’s generally recommended to hire a industry professional to perform the Reserve Study. While members of your Board can perform the study, a third party professional opinion also helps limit and remove any bias which could compromise the report and its outcomes. It is essential that a homeowners association stays financially prepared to manage the assets the neighborhood has. An updated Reserve Study helps ensure an accurate picture of current finances and future expenditures.