Have Reservations about Reserve Studies?

What is a Reserve Study and Why Are They Important?

A reserve study serves as a proactive tool for HOAs to anticipate and budget for major

capital expenditures. They provide a comprehensive analysis of the community's

infrastructure, including roads, roofs, common areas, and amenities, evaluating their

condition and estimating the funds necessary for their future replacement.

Why Perform Regular Reserve Studies?

For HOA board members in Colorado, embracing reserve studies is a strategic decision

that benefits both the community and its residents. Here's why:

• Financial Planning and Stability: Reserve studies empower HOAs to develop

realistic budgets and funding strategies, minimizing the risk of financial shortfall or

special assessments.

• Asset Preservation and Enhancement: Regular reserve studies enable HOAs to

identify maintenance needs and prioritize capital improvements effectively which

can extend the lifespan of community assets and preserve property values.

• Risk Mitigation and Compliance: Compliance with Freddie Mac/Fannie Mae

regulations for condominiums ensures that HOA’s remain eligible for financing

options and uphold their fiduciary responsibilities to homeowners.

Even Federal Agencies Are Seeing Their Importance.

Recent requirements from Freddie Mac and Fannie Mae for condominiums have

underscored the importance of reserve studies for HOAs. These regulations,

aimed at protecting the financial stability, require condominium associations to

maintain adequate reserves for future repair and replacement costs. Failure to

comply with these requirements could result in challenges securing financing for

potential homebuyers, adversely affecting property values within the community.

Legislation has been proposed in the past that would make reserve studies

mandatory for associations that qualified (typically those with major shared

components), but it has never passed. Currently, there are 11 states in the US that

have some sort of reserve study requirement in place.

Frequently Asked Questions

But reserve studies are expensive and cost our association even more money. How do we justify the cost?

Yes, reserve studies come at a cost, but board members should view the studies as an

investment and consider the significant return on that investment. If the Board is able

to use a reserve study to create a viable plan and enact it with the community then

surprise repairs/replacements will lessen which can save your community thousands

of dollars every year. Reserve studies are also a fantastic tool to use during budget

season to show homeowners why the assessments might need to increase that year.

Our community doesn't have a reserve study. What should we do next?

Work with your HOA management company to get three bids from reputable vendors

and choose the best option so you can have a reserve study on hand as soon as

possible. Most reserve study vendors will provide varying pricing options based on the

detail desired by the Board and how quickly it is needed.

Our community has a reserve study, but it's more than 3-5 years old. Do we need to get a brand new reserve study?

Reserve study companies will often times perform a reserve study “update” which will

cost less money. They simply perform an update to the reserve study they previously

created for your association. If your reserve study is too old, though, they may require

that a new study be performed.

By embracing the principles of financial planning, asset management, and regulatory

compliance, HOA’s can navigate the evolving landscape of regulations and legislation

with increased confidence and help ensure the continued well-being of their residents

and community.