Because your community association Board has a fiduciary duty to manage funds and property, reserve studies are very important. The information supplements your annual operating budget to balance short- and long-term needs and costs. A good reserve study provides a complete financial picture and maintenance plan for the association.
Reserve Study Includes Three Areas
A reserve study is a budget-planning tool that estimates the current repair/replacement costs of major common elements. It also establishes anticipated timeframes with a funding plan. Studies should include these three areas:
- Identify the association’s repair/replacement obligations
- Determine cost and timing of repair/replacements
- Establish a funding plan for repair/replacements
Good reserve studies include a list of components, physical condition and costs. Some also include alternatives in addition to replacement and repair options for some common elements. This is helpful when the component is dated, no longer available or a more energy efficient model exists. Your reserve study should include this information for repair/replacement:
- Identify major common element components
- Assess existing condition and remaining life of each component
- Identify anticipated repairs for each item
- Estimate current replacement cost for each component
- Assess potential for alternatives
- Establish timeframe for repairs/replacement
Planning Your HOA Reserves
The information from your reserve study goes beyond estimating reserve contributions. It also helps your Board develop a replacement plan that you can use to negotiate with vendors. However, it’s important to recognize that replacement costs vary over time, so actual replacement costs are usually different from the “current” cost outlined in your reserve study. In addition, actual costs are influenced by current material prices, weather, location and the economy. Keeping your reserve study updated with current costs provides a better budget-planning tool for your HOA Board.
Performing a reserve study offers many benefits for community associations. It’s a maintenance plan, a budget planning tool, and enhances the resale value. It’s one of the cornerstones that support successful communities.
Wise Property Solutions is East Tennessee’s only Accredited Association Management Company (AAMC®). As the region’s leader in community association management, the firm is committed to the industry’s best practices and continuing professional development. Wise Property Solutions’ certified and highly trained property managers empower well-organized and efficient communities. The firm maintains offices in both Knoxville and the Tri-Cities.
Tri-Cities, TN-VA: 423-926-7373