A reserve study’s main goal is to give the HOA board and administration a clear sense of what large expenses to anticipate and when. It’s crucial for board members who are new to association leadership to become familiar with a crucial instrument for long-term planning. Here are some common traps to stay away from.
To establish an appropriate and equitable level of money for maintaining and eventually replacing capital assets, a reserve study typically involves a physical and financial analysis of jointly owned HOA property over a 30-year time horizon. The HOA board and administration will receive a clear understanding of the primary expenses to be anticipated as well as when to anticipate them.
The reserve analysis includes a recommendation for a multi-year reserve funding plan as well as information on replacement costs, the estimated usable life of assets, and the current strength of the reserve fund.
When should a reserve study be updated or commissioned by an association?
(1) An association is encouraged to establish a reserve account with a financial institution to fund major maintenance, repair, and replacement of common elements, including limited common elements that will require major maintenance, repair, or replacement within thirty years. If the association establishes a reserve account, the account must be in the name of the association. The board of directors is responsible for administering the reserve account.
(2) Except as provided in RCW 64.90.080 and 64.90.545, unless doing so would impose an unreasonable hardship, an association with significant assets shall prepare and update a reserve study, in accordance with the association’s governing documents and RCW 64.34.224(1). The initial reserve study must be based upon a visual site inspection conducted by a reserve study professional.
(3) Except as provided in RCW 64.90.080 and 64.90.545, unless doing so would impose an unreasonable hardship, the association shall update the reserve study annually. At least every three years, an updated reserve study must be prepared and based upon a visual site inspection conducted by a reserve study professional.
(4) Except as provided in RCW 64.90.080 and 64.90.545, this section and RCW 64.34.382 through 64.34.392 apply to condominiums governed by chapter 64.32 RCW or this chapter and intended in whole or in part for residential purposes. These sections do not apply to condominiums consisting solely of units that are restricted in the declaration to nonresidential use. An association’s governing documents may contain stricter requirements.
What is a reserve study composed of?
An expert should supervise an inspection on site, create an analysis and reports, and go through them with the board. Although the components assessed as part of a study differ by association depending on the declaration and documentation, they frequently consist of roofs, building exteriors, exclusive roads, pools, and clubs, as well as other non-annual capital expenditures. Typically, the study does not take into account annual operating costs like cleaning and utilities.
Is it fair to treat current and future owners fairly when creating reserves to cover maintenance and replacement costs?
Setting up reserve funds invests to preserve an asset for future owners who will pay assessments when they purchase it and guarantees that owners who are benefiting from it will pay for its maintenance. Compared to special assessments, it is a more equal and timely method of allocating costs to the present and future owners. An accurate reserve analysis enables associations to assess unit owners fairly to restock the capital reserve fund, which is utilized to support significant upcoming projects.
Can the board rely on a reserve study’s accuracy?
Many associations disregard reserve studies because they don’t trust their conclusions. A thorough evaluation of the bids and a selective vendor selection procedure is necessary for a successful study. Gaining the board’s trust while conducting and preparing a study requires competence. The board will be allowed to choose a reserve specialist with knowledge and experience, such as degrees, licenses, and skills in specific areas, after a thorough vetting by the board and manager. asking the appropriate questions to dig deeper. Do the study, for instance, base replacement forecasts only on tables of “average useful life”? When inspections are superficial rather than “hands-on,” it may lead to doubt about the veracity of the projections.
Many reserve study companies avoid inspecting rooftops when on them. Businesses frequently use ground-level images and an average roof life of 20 years. The truth is that a roof’s useful life might vary by more than 10 years, depending on the quality of the materials used, how it was built, and the actual conditions on the roof, which can only be seen by a roofing expert. When a qualified physical examination isn’t carried out, many organizations disregard or mistrust the advice because roofs are one of the major capital items in a reserve plan.
Is the cost prediction accurate?
Inaccurate cost forecasting that fails to appropriately account for inflation or anticipated increases in labor and supply costs is another frequent issue. The board’s faith in the reserve study can be boosted by consultants with experience in pricing and a track record of producing accurate estimates. It’s extremely possible that an association won’t put the study’s suggestions into action if they lack faith in them. The study’s findings are more likely to hold up over time if issues are addressed up front with careful vetting.
