BlogOrganizational Management Reserve Studies for HOAs: The What, The Why & How to Succeed! Organizational Management Reserve Studies for HOAs: The What, The Why & How to Succeed! Author: Sonia Urlando March 17, 2023 Contents 🕑 9 min read Homeowners associations thrive best when they’re backed by a hefty reserve fund. The money in this fund takes care of basic maintenance costs as well as any unexpected repairs that come up. But how do you make sure that all your assets are in order? The answer is running reserve studies for homeowners associations! In order to manage your budget and resources, you need a clear idea of what you’re working with. While that might feel intimidating, reserve studies for HOA management are absolutely essential—and there are plenty of supports out there. Here’s everything you need to know about reserve studies for homeowners associations, including their components, why they matter and how to prepare for one. What is a reserve study? HOA reserve studies, or condo reserve studies, are essentially analyses of a homeowners association’s assets and reserve fund. Often performed by the HOA management companies, these studies include both on-site inspections and assessments of financial standing. Keep in mind that your reserve fund is different from your operating fund. Your operating fund covers the cost of regular expenses such as fees, utility costs or insurance premiums. Your reserve fund, on the other hand, is made to cover the cost of any major repairs or replacements. Different types of reserve studies There are four different types of reserve studies: A preliminary study usually happens before a community is actually built, and is used for budget estimates based on big engineering and architectural plans. It inventories the HOA’s basic components and overall value. A study with no site visit is the most affordable type of HOA reserve study because it doesn’t have an on-site review. Instead, the study is based on discussions between the board, staff and vendors. A study with an on-site visit is a physical audit of the association’s common elements. It updates the fund’s status, the funding plan and estimated value. A full reserve study is the most expensive and in-depth reserve study for homeowners associations. It usually only happens once at the start of the association, and includes component inventories, condition assessments, financial analyses and more. The components of reserve studies Reserve studies for HOAs typically have two components: Physical analysis: This is the assessment of the actual physical conditions of common areas a homeowners association is responsible for. It analyzes the quality of the community areas and the cost of any potential repairs. Financial analysis: During a reserve fund study, it’s essential to take a look at the reserve fund’s overall financial wellness. This component includes an assessment of projected or current expenses, revenue and the actual reserve fund balance. Why are reserve studies important? As you can see, reserve studies have quite a few moving parts to them, but trust us when we say they’re highly beneficial to your homeowners association! Here are 8 benefits of running reserve studies for HOAs: Assess the current conditions assets & properties HOA reserve studies are the fastest way to assess how things are currently looking for your homeowners association. Between your reserve fund’s financial assets and the current state of your physical properties, there’s a lot of information to keep in mind. Guesswork isn’t going to serve you in the long run! With a clear, documented idea of what shape your finances and physical conditions are in, you have the power to… Plan and budget for major repairs ahead If your study reveals any major repairs will be coming up, you can get ahead on making a plan. The budget is the backbone of any organization, and planning for the cost of repairs early in the year will keep it on the right track. After all, you don’t want to end up accidentally emptying your reserve fund or ending up in the red! Predict future costs & avoid unpleasant surprises Look, it’s not fun to consider the dent a big project will put in your budget—but it’s a lot less fun to get slammed with an unpleasant financial surprise! Many issues get worse the longer you ignore them, and an on-site reserve study can point out problems while they’re still small. Give yourself the time to plan ahead. All physical components of your condos or common areas will eventually need physical maintenance, and a reserve study will help you prepare and prioritize. Ensure transparency for HOA members Members of your homeowners association have a right to know how things are looking behind the scenes! Whether that’s the state of physical properties or the current financial situation, a reserve study is how you build trust with your homeowners. After all, you want the quality of residents’ HOA experience to match what you promise on your HOA website. Meet legal requirements Depending on which state you live in, there will be different legal requirements for your reserve study. This could include if a study is legally necessary, how often a study should be performed and what should be included. It is perfectly possible for your board of directors to prepare a reserve study on their own, but we would recommend hiring an HOA management company for support. When the law is involved, it’s always good to have an extra set of eyes! Obtain financing and insurance HOA reserve studies are also necessary for getting the risk and financial assessments you need for things like loans and insurance. Before lenders are willing to partner up, they’ll want to have an idea of your organization’s financial health. Typically, lenders will require a minimum 12-month reserve study that’s been performed specifically by a reserve study company. Insurance companies will also have a comprehensive list of requirements before providing HOA insurance. The data you get from your reserve study will cover a lot of their questions! Foster a sense of community and cooperation among members Your residents want to feel like their voices are being heard! Holding reserve studies is one way to demonstrate an active interest in their community experience. After all, they are the people who will be engaging with the common areas you are assessing. Outside of reserve studies, your board meetings are a great place to get community feedback on what could be improved! Be sure to give residents time to share, and document their thoughts and concerns in your HOA meeting minutes. Maximize property values and marketability When your properties are in the best possible shape, they are the most valuable to prospective homeowners. If you can market that everything is up to the highest standard, more people will be likely to join your community. Holding HOA and condo reserve studies shows both homeowners and financing bodies that you know what you’re doing. How to prepare for an HOA reserve study Now that you know how valuable it is to hold an HOA reserve study, let’s explore what it actually involves and how to get prepared. What does a reserve study involve? A reserve study involves a few key components: A component analysis is performed during the on-site inspection of community areas. It identifies the quantity of components, their value and anticipated remaining useful life. This could include things like paint, fencing, roof replacement, HVAC equipment and more. Summary of finances in the reserve to fund current and future projects. These hard numbers provide a clear look at your homeowners association’s current ability to fund repairs. List of responsibilities. Documenting who owns which projects is how people are kept accountable throughout the life of your association. Projected expenditure for future repairs shows which repairs are to come and what you expect they’ll end up costing—which is essential for budgeting plans. Like we said before, you want to avoid surprises wherever possible! A detailed repairs plan shows residents, lenders and more what you’re planning to work on in the coming months or years, and how you intend to do it. A funding plan that meets legal requirements. Be transparent about your funding as often as possible. Once you’ve researched your state’s legal requirements for filling your reserve fund, work out the steps on how you’ll get started. 8 steps to prepare for an HOA reserve study Here are 8 steps to get you prepared for your HOA or condo reserve study: Assemble a reserve study committee. As with any project, it’s important to know who owns its oversight. Assemble a dedicated committee who will check in on the study’s progress during your board meetings. Determine the scope of the study. How in-depth would you like your reserve study to go? Are you looking for a simplified study that does not include a site visit, or do you want to be as thorough as possible? Gather all relevant financial and property information. This one’s pretty self explanatory: gather and organize your information! You want your study to be straightforward and efficient. Hire a qualified reserve study professional. We highly recommend working with an HOA management company that specifically handles reserve studies. In some cases, these studies are legally required, and can impact whether or not you receive loans or insurance. Involving experienced professionals will reduce your risk of trouble. Review and approve the study. Once the study is complete, have your board review it. If everything appears accurate and understandable, they can give it the final approval. Develop a funding plan. The reserve fund doesn’t fill itself! Whether it is time to raise dues or take out loans, make sure you have an idea of how you’ll get the funding for required repairs. Communicate the study results to the community. Communication is key! Beyond financial transparency, your residents will appreciate knowing what projects they should be anticipating in the future. For example, if you are going to be resealing the community pool, it’s essential to give residents notice. Review and update the study regularly. Your assets, as well as the state of your properties, will change over time. By having consistently updated reserve studies, you will have the most up-to-date data. The more accurate your information, the easier it is to stay on top of things. FAQs Here are a few frequently asked questions about reserve studies for HOAs: Is an HOA Reserve Study Legally Required? Whether or not reserve studies for HOAs are legally required is dependent on the state you live in. Because the requirements vary depending on state law, be sure to research your state’s individual laws. How Often Should I Do a Reserve Study? The frequency of your reserve studies is also dependent on your individual state’s requirements. Some states like California and Utah require a study to be performed every 3 years, whereas Nevada only requires them every 5 years. No matter what your state says, keep in mind that the more frequently you hold a reserve study, the more up-to-date your organization’s information will be. How Much Does an HOA Reserve Study Cost? The cost of reserve studies for HOAs depends on how comprehensive of a study you’re looking for. For example, a study that doesn’t require an on-site visit will typically be between $250 and $500. On the other hand, a full reserve study could cost up to $1800 depending on the management company you hire. Because these studies are so complex, we do recommend that you pay for help from an HOA management company. Keep in mind, the cheapest option will not always give you the most detailed results. When it comes to your residents’ happiness and the well-being of your organization, it’s worth making the investment! Understanding your resources with a reserve fund study Ultimately, HOA reserve studies reveal your capacity for maintaining the quality of your community. Repairs are inevitable, and knowing your resources will help you prepare for them and maintain a happy community! (Psst—looking for other ways to keep nurturing your relationship with residents and make things easier behind the scenes? Investing in HOA software is a great way to take the load off and keep improving your association in the long run.) Related Organizational Management Articles Organizational Management 🕑 10 Min Read 32 Free Nonprofit Webinars for December 2024 Fundraising 🕑 8 Min Read 501(c)(6) vs 501(c)(3): Simplifying Nonprofit Classifications Membership 🕑 8 Min Read Club Leadership 101: Roles, Responsibilities and Best Practices The Membership Growth Report: Benchmarks & Insights for Growing Revenue and Constituents Get the report now!