You have done your Reserve Study. Now you're good, right? Not so fast! And here's why...
Phew... your Community Association has had a comprehensive Reserve Study is completed! It includes a diligent onsite evaluation of the conditions of all major components in your community, and you have an estimated 30-year projection of expenses that will need to be accounted for in your reserve fund.
That must mean that your Community Association is good for the next 30 years, right?
No, not exactly.
How often do you need to have a Reserve Study conducted, and is a full study even necessary?
What State are You in?
Every state has different requirements in regard to an Association’s Reserve Funds.
Some states, like Arkansas and Georgia, have not yet adopted any specific statutes related to Reserve Studies.
However, some of the strictest states in this regard, like California and Hawaii, require that some kind of study be done every year. But if you live in a state with annual Reserve Study requirements, wouldn’t it be expensive to have this done so often?
What Kind of Study Does Your Community Need?
The extent and therefore, the cost, of your Reserve Study will depend on what type is needed.
Once your initial study is completed, there are two main types of Reserve Studies: An Off-Site Review, and a Reserve Study Update with a Site Visit.
The first type is what states like California require annually. This kind of study is less expensive because it does not require a professional to visit the site for a full physical assessment, as it has been assumed that there have been no major changes to the inventory of common area components or to the pattern of operations and maintenance since the last visit.
The second type is more expensive because it is more thorough and includes an on-site visit. In the state of California, this kind of Study is required every 3 years but you may need to refer to your local laws to determine what the requirements are in your area.
The reason for doing this more in-depth Reserve Study is because conditions, life cycles, and costs of major components have likely changed in that amount of time. So it only makes sense to make a full reevaluation at that point.
What If Annual Reserve Studies are Not "Required" In My State?
Even if you live in an area that has not adopted any specific statutes related to reserve studies, having adequate reserves is extremely important to the functionality of your Community Association.
And the only way to be sure of having those funds is to have a thorough, professional analysis of what’s needed. If regular updates are not done, it cannot be determined that the funds are adequate. It should also be noted that regular updates allow for more gradual changes to financial requirements.
If it is left unchecked for extended periods of time, many changes to the plan may occur which can result in an unexpected increase in contribution funds required by the homeowners.
So in reality, even if Reserve Studies are not required by your state or are required less often than every year, you can never be too prepared for the future.
To protect your Association from running out of funds or being accused of negligence, it is advised that a complete Reserve Study with an on-site evaluation be done every 3 years, and updated studies without site visits be done every year.
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