Q & A: Reserve Analysis for Your HOA

One of the main responsibilities of an HOA's Board of Directors is to review and ensure the finances of an HOA are in order and ample, and that includes future expenses. In some cases, the best way to achieve this goal is to conduct a reserve study. A reserve study is a long-term capital budget planning tool that is also valuable for assessing and analyzing the health of a homeowner association’s physical property.

For HOAs, reserve studies are utilized to properly maintain HOA property and fund its reserve account. A reserve study professional, also known as a reserve specialist or reserve analyst, is hired to facilitate a reserve study.  This info may help your association find if you need a study and, if so, locate the perfect reserve study professional. 

First the basics: What is a Reserve Study?

A reserve study looks at the reserve fund and analyzes all foreseeable capital improvements and repairs. For example, if your community has an amenity with fencing that needs to be replaced every ten years, the reserve study can calculate how much your association needs to save to perform the repair at the projected time. Typically, reserve studies are comprised of two parts:

• The physical analysis. Evaluating the physical status of the association and estimating the repair and replacement costs of the major common area components.

• The financial analysis. Assessing the current reserve fund status and recommending an appropriate reserve contribution rate.

Tell me more: What is A Reserve Fund?

A reserve fund is money set aside by a community association for additions to major components the association maintains and future replacements and repairs that don't occur on an annual basis. Generally, money is raised through assessments. It’s then used on things like:

• Roof replacements

• Pool pumps

• Playground equipment

• Replacing fencing in common areas

• Painting of community-owned buildings

• Major landscaping projects

• Construction and major renovations

• Road and sidewalk resurfacing for closed-gate communities

To determine how much money your association should have in its reserve fund and ensure you’ll have enough money for a repair or replacement, it’s recommended to regularly hire a professional for a reserve study.

I'm in: Who Conducts Reserve Studies?

Associations must hire a reserve study professional to facilitate this task—a reserve specialist or reserve analyst. People in these roles are specifically trained for the detailed and complex nature of a typical reserve study.

The Community Associations Institute offers a professional Reserve Specialist® (RS®) designation. To gain the credential, qualified individuals must demonstrate their excellence in the practice through years of experience, education in a related field, and compliance with ethical standards. While this industry designation exists, every state and community is different, so always check your governing documents and state regulations for additional requirements. It’s important for boards to do their due diligence when hiring a reserve specialist, ensuring that association funds are properly spent.

What else: What to Consider When Finding a Reserve Study Professional

1. Budget

Before exploring your options for a reserve study professional, you’ll need to look at your HOA’s budget to determine how much money you can allocate to finding and hiring someone for the role.

The cost of a reserve study varies with the size, complexity, and location of your community. The cost to conduct a first-time reserve study for a small HOA can start at $2,400, but the price of a first-time reserve study will likely differ from that of a subsequent reserve study. Knowing what your financials look like and understanding the types of reserve studies you can afford is a crucial first step to finding the right reserve study professional.

2. Study Type

Typical reserve studies are comprised of two parts. First, there’s the physical analysis, which evaluates the physical state of your community and estimates the repair and replacement costs of major common area components. Then, the financial analysis looks at your association’s finances and current reserve fund status to see how you can fund needed repairs and updates.

To determine which study works best for your association, review your association’s governing documents and local and state laws. The most common forms of a reserve study are:

• A full reserve study. A full study looks at all aspects of your community’s structures, gathering an inventory of the components used to maintain those structures and their condition. It also includes an analysis of your association’s funds. A reserve specialist creates a comprehensive plan to keep your community well-maintained and functional.

• A reserve study with a site visit (WSV). WSV studies are less thorough than a full analysis, but a reserve analyst does visit your community to check on the property and reassess valuations, funds, and costs, as needed. They’re typically conducted every three to five years.

• A reserve study with no site visit (NSV). With no on-site visit, a reserve analyst collects information about the upkeep of the community from conversations with the board, vendors, and maintenance staff. These kinds of studies are meant to be used between WSV years, but they can also be used by associations looking to keep costs low.

3. Location

Each community, state, and city has varying laws in regard to reserve funds and studies. For example, Virginia requires a reserve study to be completed every five years, while there is no law in most states, like MS and AL, requiring it. That's why you should hire a reserve study professional who is familiar with your specific regulations and ordinances.

To find an accredited reserve study professional that serves your area, visit the Association of Professional Reserve Analyst’s online member directory. There, you’ll find areas of service and contact information for dozens of professionals. 

4. Experience

Attention to detail is key to an effective reserve study, so it’s crucial to hire the most experienced and qualified professionals to get the job done. Experience matters and can make all the difference in the quality of work. Look for professionals with:

• Industry accreditations. Organizations like the Community Associations Institute (CAI) and the Association of Professional Reserve Analysts ensure that analysts conduct reserve studies under a strict set of regulations.

• Previous experience that suits the role. Firms or individuals with backgrounds as accountants, engineers, architects, and similar roles will be best suited to handle the needs of your community during the reserve study process, as they have formal education that’s directly connected to the structural knowledge required to perform at the top level.

• Information on workplace structure. Organizations with a team of in-house analysts may have additional training opportunities or staff quality assessments that you might not find with independent contractors.

• References or examples of previous work. Look for analysts who break down what you can expect from their work. Ask for references that are similar in size and budget of your own community.

5. Available Guarantees/Warranties  

While you might find a reserve study professional that feels just right for your association, it doesn’t mean everything will be perfect. Before signing a reserve analyst contract, check to see if they offer any guarantees or warranties. Ideally, you’ll find someone who stands behind their work. Look for quality guarantees or satisfaction guarantees, and ask about warranty details, like what the warranty covers and when the vendor will perform the warranty work.    

Learn More About Reserves

A reserve analyst has a detailed understanding of reserve studies and funds, but do you? Especially if you have amenities, you may consider a reserve study for your community.