As an owner or manager of a homeowner’s association or other planned community, it’s your responsibility to ensure that finances are properly managed. Reserve studies are vital for an association to maintain its financial health, as they are required to take place every three years in accordance with CA Civil Code 5550. However, there are several misconceptions about them. We’re going to divulge some of the most common myths about reserve studies and explain why they are untrue.
Misconception #1: Reserve studies are too expensive.
The cost of a reserve study fluctuates based on the number of common area amenities, size, age, and intricacy of your community. Rest assured that reserve study firms often offer flexible service options and payment plans that accommodate a wide range of budgets. By investing in a reserve study, you can avoid expensive surprises and better prepare for the ongoing maintenance of your community. As such, it’s vital to ensure that you’re getting the best possible value for your investment.
Misconception #2: Reserve studies will increase dues.
Although it is not possible to predict if dues will increase or decrease since no two associations have the same items and account balances, it is still important to have a reserve study. If an association has neglected to fund an item, a reserve study can be beneficial as it will highlight the issue and give the association time to budget accordingly, rather than ignoring it. Reserve studies only increase dues if an association’s reserves are under-funded. Failing to properly maintain reserve items can be costly as it can lead to the need for special assessments or accelerated wear and tear, resulting in higher costs in the long run. Therefore, it is important to have an updated reserve study to effectively manage your association’s finances.
Misconception #3: You can do your own in-home analysis.
While it is possible for some associations to conduct their own study, it is not recommended. A reserve study conducted by an experienced professional takes the burden of liability off the shoulders of board members, allowing them to fulfill their fiduciary duties to the community. Conducting an In-house reserve analysis requires expertise in construction trades, access to up-to-date cost data, knowledge of all reserve items, and the ability to estimate the lifespan and remaining life of each item. There is an overwhelming amount of information to consider, and the task at hand is quite extensive. It is best to leave the reserve analysis in the hands of an experienced professional.
Reserve studies are an essential component of effectively managing an association’s finances. To mitigate potential risks, it is best to invest in a reserve study and leave the task of conducting the study to experienced professionals. Doing so ensures that your association is fulfilling its fiduciary duties to the community and managing its finances properly.
