Do you find that your Association constantly has unexpected repair or replacement costs that you don’t have money budgeted for? If so, it may be a good idea for your Board to look into having a reserve study done for your community.
I recently spoke with Will Simons, RS, President of the Florida office for Association Reserves. The firm has been providing reserve studies since 1986 and has performed over 50,000 of them. They have 12 offices all over the United States and provide reserves studies to community associations. A reserve study is a document used to help forecast and budget for the major projects that the community will need to undertake in future years. I talked to Will about how they would provide a reserve study for condos and HOAs.
The things typically included in a reserve study will vary based on the type of community, but in general, they include:
- Major Repair costs
- Major Replacements costs
- Costs for upgrades or modernizations of common elements
The goal of a reserve study is to help determine the life expectancies and the replacement costs of different components of HOAs and condos, and to provide a reliable financial analysis based on the timing and costs of future expenses. Preparing a good budget with adequate reserve funding is important because it will reduce the likelihood of needing to impose a special assessment or seek out a loan for major projects. In addition, a reserve study is valuable because it incorporates objective, professional guidance from trained experts with many years of experience working with other communities that have similar needs.
Having a current, professional reserve study also helps to protect and maintain property values, as it allows associations to fund projects on-time and without outside assistance, making for a more financially stable community. These days, homebuyers are increasingly sensitive to the risks of buying into a community with a history of special assessments. If an association can demonstrate that it’s actively working to reduce those risks, it may be a more attractive place to own than those communities that aren’t doing so.
It is an industry best-practice to get a reserve study for your condo association or HOA about every three years, in order to ensure the component data and resulting funding plan are kept current. The Florida statutes do not require reserve studies for associations; however, every year a reserve schedule is required with the association’s annual budget. Completing a reserve study ensures that the board is using accurate numbers from a third-party professional with no other financial interest in the property.
The cost of getting a reserve study done would depend on the time the experts need to analyze the property, but in general, the turnaround time is usually about six to eight weeks. Properties with more common area components tend to pay more for a reserve study, as there’s more work and detail involved in the process. Location is also a factor that can also affect the cost, as travel expenses may need to be added.
Most community associations have the same fiscal year ending December 31st, meaning most are close to finalizing their budgets in September or October. Since the reserve study typically needs to be done before the budget is adopted, the summer and fall months tend to be the “busy season” for reserve study providers. However, communities that get an earlier start in the year, such as January or February, may have the advantage of more time to ask questions or request revisions from reserve study firm. In some cases, the fees for the reserve study itself can also be lower based on the time of year.