Reserve studies are an integral part of maintaining or managing an HOA. They help evaluate the reserve fund’s state of the associations so that a long-standing budget may be more effectively planned. As the HOA reserve study is complex, board members are often intimidated when approaching it. However, if you have the proper knowledge and a few assisting hands, you will understand that managing an HOA is an essential component.
Let’s dig deeper to learn about reserve study and why you need it.
The Importance of a Reserve Study for HOAs
The importance of reserve studies for homeowners associations cannot be overstated. Whether it’s a new roof or a new pool, many projects that influence shared spaces are large, expensive, and require years of preparation.
Studies of the HOA reserve fund assist the board in obtaining a more accurate financial picture. They do this to plan for significant expenses by covering the money that is accessible currently and in the future. It is, without a doubt, an essential tool for many HOA boards.
Reserve Study- An Overview
An HOA reserve study involves an in-depth examination and on-site assessment of an association’s assets. The analysis, typically offered as a management business service, provides an association’s financial future road map.
The studies for “Homeowners Associations” or HOA are crucial in helping the board decide on the organization’s future financial course.
An HOA reserve study typically consists of two sections:
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Physical Evaluation
This section of the study evaluates the physical state of common areas that an HOA is tasked with keeping up with and fixing. A cost study of the repair or replacement is also included in it.
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Financial Analysis
In this study section, the association’s financial health is evaluated, including reserve fund balance, income, and outgoing costs.
How to Conduct an HOA Reserve Study
An HOA reserve study comprises several steps. The management firm first examines and assesses the finances of an association on-site.
Then, it compiles a report outlining all significant association areas supported by reserves. The paper offers suggestions for a multi-year reserve financial plan as well as an assessment of the condition of the current reserve fund.
The report concludes by listing the expected lifespan, the existing replacement cost, and the remaining lifespan of all the significant reserves-funded components of the association. Keep in mind that this report needs thorough research and comprehensive assessments. Therefore, it is always better to rely on the expertise of professional construction management firms to create an HOA reserve study.
When to Conduct Reserve Studies
Many states mandate reserve studies to be conducted regularly. For instance, in Washington, the current legislation that governs reserve studies for HOA requires the board to conduct a reserve study after three years and assess the findings under Washington Civil Code RCW 64.34.380 and 64.38.065.
Summing Up
An HOA reserve study, though it might seem like a challenging endeavor, can save the association a ton of time and money in the long run. The best way is to work with an HOA management organization due to the complexity of reserve studies. An expert management firm such as David Bach & Associates has the degree of expertise and competence necessary for such a task. These professionals also know non-financial topics.
