Over the past 30 years of HOA Budget preparation and consulting, we have found that an alarming number of HOAs either neglect to have a reserve study completed, or fail to have it updated with the proper disclosures required by law. This causes delays in obtaining a Public Report and can lead to significant liability to any association, much more so for a builder-controlled HOA.
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What’s the Big Deal?
A Reserve Study is a capital budget planning tool used by homeowner associations, condominium associations, and developers of phased developments. The study measures the current status of the association’s reserve accounts in comparison to the anticipated expenditures for maintenance or repair of the common areas and facilities. Also, its purpose is to show a detailed list of all assets and items to be repaired and maintained, along with a spending plan for the development over the next 30 years, creating a funding plan to meet those maintenance obligations. The Reserve Study is also a valuable tool when working with real estate professionals and lending institutions for potential homeowners, as it is often requested to reveal the financial strength of the Reserve Fund before purchasing a property.
Don’t Forget the Law
In California, the Civil Code section 5550 requires a Reserve Study to be completed at least every three years and reviewed annually. The annual review requirement translates to an annual financial analysis update to the Study, to reflect the changing financial information of the HOA.
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The Proof Is in the Pudding
A well-documented and strongly funded Reserve account increases property values and marketability! Lending institutions such as FHA are adopting stringent requirements in the hopes of ensuring a minimum standard of Reserve Fund health. Some studies also show that an association with a fully funded reserve account, as evidenced by a Reserve Study, helps maintain and increase the property value of the homes.
California Builder Services Is Here to Help!
We started completing Reserve Studies for our clients shortly after we opened the company and have since then been awarded the Reserve Specialist designation by the Community Association Institute (CAI-RS). When deciding who to complete your reserve study, make sure to select someone with years of DRE experience as well as the designation of Reserve Specialist. For more information, CLICK HERE.
