Do you find that your association constantly has unexpected repair or replacement costs that it doesn’t have money budgeted for? Many association boards are afriad to raise dues to the levels needed to avoid special assets and hope nothings breaks until after they are off the board. We refer to this as the “head in the sand” approach. If so, it may be a good idea for your Board to look into having a reserve study done for your association. In Washington State the board is required to disclosure yearly if there are special assets on the horizon and the level of funding. In the past many boards claimed financial hardship to avoid having a reserve study but that was so pervasive that the legislature tightened up the definition with the Washington Common Interest Act
A reserve study is a document used to help forecast and budget for the major projects that the association will need to undertake in future years. Its a valuable tool the board can use to maintain the community assets. The things typically included in a reserve study will vary based on common assets of the association, but in general, they include:
Major maintenance costs
Major replacements costs
Costs for upgrades or modernizations of common elements
The goal of a reserve study is to help determine the life expectancy and the replacement costs of different components of HOAs and condos, and to provide a reliable financial analysis based on the timing and costs of future expenses. Preparing a good budget with adequate reserve funding is important because it will reduce the likelihood of needing to impose a special assessment or seek out a loan for major projects. In addition, a reserve study is valuable because it incorporates objective, professional guidance from trained experts with many years of experience working with other communities that have similar needs.
