by Brian Tight, Director of Developer Relations & Lake Worth Regional Director, Campbell Property Management

Reserve studyWhen was the last time your community did a reserve study? As communities get older, they begin to experience “wear and tear.” Inevitably, building and ground components that are maintained by the community need to be maintained and/or replaced. The components will vary from one association to another (Condo or HOA),  because no two communities are the same. These components include but are not limited to: roofs, HVAC (heating, ventilation, air conditioning) systems, painting, paving, pools, elevators, lakes, and other major assets with varying lifespans. Knowing this, most communities have money, known as reserve funds, set aside each year for the maintenance and replacements costs. How does a community plan and fund their reserve funds?

Community associations hire independent consultants or firms to conduct reserve studies report that includes at least these 3 elements:

  1. A listing of all the major assets that need to be funded through the reserves including each asset’s:
    • Expected useful life – how long it typically lasts
    • Remaining useful life – how much longer it should last
    • Current replacement cost – how much to replace now
  2. An evaluation of the association’s current reserve funds – Are your reserves well-funded based on the assets analysis? Are you budgeting correctly for these replacement costs?
  3. A recommended reserve funding plan – based on the current state of the assets and reserve funds… do you need to budget more? or less?

Does YOUR community need to do reserve studies? Florida law does not specifically require that reserve studies be conducted. However, according to CapitalReserveConsultants.com, they do “require that the reserve contribution be calculated using a formula that is based upon the estimated remaining useful life or EUL, and the estimated replacement cost or deferred maintenance expense for the component.” These values are then used to help calculate annual budgets, which are required by Florida law. Mandatory or not, reserve studies should be conducted to protect the board and its members from any liability. Hiring the right reserve expert may be costly, but it’s entirely worth it. Paying the necessary fees to get an extremely detailed study will pay off in the end.

Has your community hired a reserve expert? Or did they calculate their reserves themselves? Let us know in the comment section below.

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