What Is A Reserve Study? Is It Necessary?

HOA reserve studyIf you’re one of the HOA board members and wondering if you need a reserve study, this might just be the right time to learn more about what it is. When was the last time you had a reserve study? Are you familiar with the benefits of having one? Let’s discuss more it and hopefully, we have the answers to your questions.

 

What Is an HOA Reserve Study?

It consists of physical and financial analysis of common area components to help with the association’s budget planning. It analyzes the current reserve fund and then creates an equitable plan that will cover ongoing deterioration of the common area expenses that a homeowner’s association may incur.

Some examples of these expenses are landscape replacement, road painting, and amenities maintenance. All long-term assets that need periodic maintenance are counted here.

 

Why Is an HOA Reserve Study Important for Your Community Association?

Its main purpose is to give HOA board members a better idea of what the upcoming expenses are related to the maintenance of the common areas and when they’ll have to deal with these expenses. Upon knowing this information, the BOD can start planning a budget so that the community association can start allocating funds to the reserve.

Since the study oversees the maintenance of usable assets, the funds will offset the cost of deterioration as well as the repair, replacement, and maintenance of those assets. This will avoid dipping into other sources of funds that are unaccounted for.

Furthermore, homeowners also benefit from the HOA reserve study. Homeowners can see the condition of the common area components, the strength of the reserve fund, and the preparation made by the HOA board members. The study can show where part of the homeowner’s association fees is going.

The typical calculation for the reserve fund is the replacement cost divided by the number of years that asset should last. The answer is the amount to put in the reserve fund yearly.

 

Who Will Do the Reserve Study?

Not everything is equipped or even certified to make a reserve study. Usually, the HOA board will outsource a professional reserve specialist to make the study for them. This takes the liability off the hands of the HOA board members, too.

You can get the reserve study done around 4-5 months before starting the new budget year. This gives the board time to approve it, especially if they don’t meet often. For BODs who only meet quarterly, it’s vital to get the reserve study done at least more than six months ahead of time to make sure the approval makes the new budget year and is implemented at the right time.

The price of the study will depend on when it was done. For the first two years, the cost can be between $400 and $600. For the third year, it can go from $1200 to $1800. The community association must also take these fees into account.

If you’re looking to save money, you may opt to hire a financial management company instead. This company can do your accounting books as well as your reserve study for a reasonable fee.

 

A Reserve Study Is a Must!

A reserve study helps the homeowner’s association to plan ahead and always keep tabs on the budget and funds they need. At the same time, it also contributes to the cleanliness and maintenance of community amenities and facilities. This study is part of the HOA board’s responsibility, and neglecting or ignoring it can lead to dire financial consequences later on.

 

Clark Simson Miller Can Handle Your HOA Reserve Study

If you’re unsure of how to go about a reserve study for your community, you can contact Clark Simson Miller. The professional from CSM have years of experience working with homeowners’ associations in the U.S. under their belt, including both small and large communities. They can help you with any financial management needs that you may have. You can send an email to help@csmhoa.com, For a free quote, give us a call at (865) 315-7505 or contact us online!