Reserve studies are a crucial part of financial management for community associations. Despite this, some communities are hesitant about performing one. The following outlines five misconceptions about reserve studies.
Misconception 1: Reserve studies are too expensive
The cost of a reserve study typically ranges from $2,000 to $5000, depending on the age and complexity of the community. While the focus of many associations is to keep the budget as tight as possible, a reserve study is a very useful tool that likely can be used yearly for budgeting. It is quite likely that not having a reserve study done will cost the community far more because of deferred maintenance and the stress of having special assessments. Additionally, a reserve study can offer guidance on how to maintain the community’s assets and help plan what order to perform major projects.
Misconception 2: We can claim financial hardship and skip the Reserve Study
When the Washington State Condominium Act changed in 2008, there was a financial hardship clause. However in 2018 when The Washington Uniform Common Interest Ownership Act (WUCIOA) was approved, the financial hardship clause was removed. Associations with 12 or more owners are now required to have reserve study or disclose why they don’t have one.
Misconception 3: We don’t have to update our reserve study
Today material and contractor costs are a “moving target.” What contractors were charging in 2020 is not what they are charging today. Associations that thought they had adequate funds for replacing a roof, are shocked when they see today’s estimate. Pacific Crest Reserve’s track costs on a local basis and keep our association up to date on future project costs so there will be adequate funds.
Misconception 4: We can do our own reserve study in-house
While it is possible for some associations to do their own analysis, Washington State laws require a reserve professional to do Level 1 and 2 studies. While some associations will have to have people proficient in construction trades, rarely will they have the financial and estimating experience needed. Another point to having a professional reserve study done is that it takes the liability off of the board and lets them uphold their fiduciary duty to the community.
Misconception 5: A reserve study will make our dues increase
No associations have the same set of items and the same account balances, so there is never a way to know for sure if the dues will increase or decrease. Nevertheless, fearing that the reserve professional findings may increase dues is not a reason to not have a reserve study. An example might be that an association forgot to fund for something, in which case putting it on the reserve schedule is helping the association actually have time to fund for that item instead of ignoring it. Omitting reserve items whether deliberately or not is poor property management, and it will certainly cause the association more money in the long run because the item will wear out faster with no preventative maintenance and then have to be paid for
Reserve studies are a crucial part of financial management for community associations. Despite this, some communities are hesitant about performing one. The following outlines five misconceptions about reserve studies. with a special assessment.
