Today we have client associations who only sign up for us to do a single reserve study and then we don’t hear from them for years. The board make think it is being conservative but in reality they are operating using old data as a guideline. In Washington State, the Condominium Act is pretty clear that any association with 11 or more members needs to maintain the reserve study and keep it current. But outside of compliance with the Condominium Act how long a reserve study will stay effective depends on several things: inflation, construction costs and demand, stability in the community, and when major projects are scheduled
Inflation’s Impact on Costs
Historical inflation is approximately 2-3% per year. However, in a 2021-22 we saw contractor labor and building supplies increase by 9%. When you compound that interest over several years it will have a significant impact on reserves. An association that does not increase contributions to compensate for inflation will quickly see healthy reserves eaten away. Will we see inflation continue to grow in the future. Its too unclear to predict which is why we do yearly updates.
Construction Costs
Just as inflation rates will go up and down, so will construction costs depending on supply and demand. In the Pacific Northwest qualified contractors who will work with associations are in short supply and those that will work with associations are busy. This drives up the quoted prices as the contractors don’t need the business.
Major Projects
As major projects approach we highly recommend the association gets actual quotes from the contractor. We would then update the reserve study and present it to the board. Prior to 2019 I would say that our estimates would be very close to the actual costs. After 2020 project prices exploded with paint and roofing being the worst.
Summary
Are there any instances where an association can wait to do reserve study updates? Yes – Many newer Homeowner Associations have a minimal number of common assets. If the association only has some fencing, landscaping, mailboxes and signage, then updating the reserve study every 4-5 years can be sufficient.
