Here are the Top 5 Reasons Why Reserve Study Reports are Necessary
Many HOA’s spend a lot of time reviewing their everyday operating expenses, but any major upcoming projects will most likely not be included in those expenses.
Such projects and maintenance will require a reserve fund to be set aside. How much consideration has your association given to your reserve fund and how will the HOA know how to prepare for those future projects?
This is where a reserve study comes in.
Here are the top reasons to conduct a reserve study:
One: It’s a Legal Requirement
Section 5550.a of the Davis-Stirling Common Interest Development Act states:
“At least once every three years, the board shall cause to be conducted a reasonably competent and diligent visual inspection of the accessible areas of the major components that the association is obligated to repair, replace, restore, or maintain as part of a study of the reserve account requirements of the common interest development, if the current replacement value of the major components is equal to or greater than one-half of the gross budget of the association, excluding the association’s reserve account for that period. The board shall review this study, or cause it to be reviewed, annually and shall consider and implement necessary adjustments to the board’s analysis of the reserve account requirements as a result of that review.”
Two: Unexpected Events Happen
Associations have to be prepared for unexpected projects, like roof repair or replacement, or the installation of a new HVAC system. These major improvement projects usually come at a great cost.
Without a proper reserve study, the funds may not be available when those projects are needed, or worse, the HOA may be unaware of the need for such repairs, since an on-site evaluation has not been performed.
Three: Many HOAs are Underfunded
Without a professional reserve study, it is very difficult for the board to determine projected costs for future repairs, renovations, and maintenance.
Reserve specialists deal with real numbers all day, every day. They know from experience what the roofing costs, what the siding costs, what deck replacement costs, and they can accurately tell you when all that is going to take place, whether it’s five years from now, 10 years from now, or even as far as 30 years down the road.
That kind of information is invaluable to ensure the success of the HOA in your community.
Four: Homeowners Don't Like Surprises... and Neither Will You
Remember the last time you had an unexpected car repair? Didn’t that just make your day? Yeah, we didn’t think so.
And if your HOA isn’t prepared to cover the expenses of major projects, they may be forced to incur a “Special Assessment” in which each homeowner will have to do their part to cover the costs up front. This will cause frustration and waste time and money for both parties. And even if a loan is obtained instead, this will cost more in the long run when factoring in interest.
So why put off for tomorrow, what you can start taking care of today?
Five: It Sets Homeowners at Ease
Most people want to know they’re getting what they pay for, and a homeowner is no exception. They should be assured that their HOA fees are being put to good use and not being mismanaged.
A professional reserve study will ensure that they are put at ease because the board has sought out the advice of independent Reserve Study experts, and they will have access to information on how these funds are being spent, therefore reducing the potential for claims of financial mismanagement.
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