By|Oct 9, 2018|Finances
State laws and/or association governing documents typically mandate an HOA reserve study be prepared for funding the future replacement of major components such as roofs, streets, and exterior paint. The reserve study provides a current estimate of the costs of repairing and replacing the common area components over the long term. The preparation of a reserve study requires:

  • An examination of the associations repair and replacement obligations;
  • A determination of costs and timing of replacement; and
  • A determination of the availability of necessary (reserve) cash resources.

Unfortunately, because the management personnel of many homeowners associations strive to control spending and avoid increases in member assessments, they frequently neglect their responsibilities relative to the maintenance of appropriate levels of HOA reserve funds that will ultimately be required for the replacement of the associations major components. The failure to maintain adequate reserves for future needs is irresponsible and will most certainly lead to future financial issues within the association.
The following indicators should be viewed as warning signs that are indicative of a homeowners association having inadequate HOA reserve study data and insufficient reserves:

  1. The association does not maintain a list of major components;
  2. The association does not have a policy to distinguish reserve expenditures from operating expenses;
  3. The association does not have a clear reserve funding goal;
  4. The association has not conducted a physical analysis of its components;

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