Reserve Studies

We are a small gated subdivision consisting of only 104 homes that has been in existence for over 13 years. The only common areas we have are the entrance way, fencing, stone walls, gates, sidewalks/portion of driveways, curbs, and roadways. At the end of this year I will end my tenure as the HOA board president. While I can feel proud about a lot of things we have accomplished, the HOA has a long way to go to meet a lot of requirements, especially in the ACC and establishing a Reserve Account. Since establishment of the HOA, no funds have been placed into any form of a Reserve Account. The HOA has been living on a savings account and checking account. All assessments flow into either of the two accounts. Over the years we have started to see our funds in these two account going down hill as we always pulling funds to pay unexpected issues, such as gate repairs and landscape issues. At one time several years ago we had CD's, but they had to be cashed in to pay for the fence replacement. Last year we pulled money from the accounts to pay for our first recoating of our roads. I asked our management company to request a quote from several companies to create a reserve study for our HOA. A quote was received last week from a company for the amount of $2700.00. During a board meeting last week, the idea of funding for a reserve study was not received very well by several of the board members. They felt we could come up with an inhouse estimate to satisfy the need to increase the quarterly assessments. However, I don't feel that way at all. I feel the only way we are going to be able to convince the homeowners about the need to starting a reserve account is with the study. Putting a portion of a 10% assessment increase into a reserve account each year is not going to build up the account to the point we will need in 3-4 years for recoating of the roads again and probably fence replacement. These homeowners will fight "tooth and nail" to avoid a special assessment or any further increases in quarterly assessments. Example -- for 12 years our quarterly assessments was $75.00. Last year we raised it to $80.00 and received all kinds of flack from the homeowners. My question is: What are feelings about getting a reserve study accomplished to provide a tool to help us get funds in an account to meet applicable replacement actions.

I would encourage you to get bids from more than one company. When we did our first reserve study last year we solicitied bids from multiple companies and while most were very similiar in price we had a very wide range in quotes.

SusanW --- We are talking about the roads/curbs within the subdivision as well as the entrance roads/sidewalks/curbs from the public street into the subdivision.

Thanks to all for their comments. Very eye opening! I really don't expect much resolution with my current board in trying to get them to understand why we need to build up a reserve, let alone why we need to start increasing the quarterly assessments for an indefinite time period until we have funds for the future. While I feel the official reserve study will never fly, I am hopeful that maybe I can convince them to purchase reserve study software so we can accomplish our own. However, then we have to find a concerned homeowner that would create the report and continue to keep it updated.

the only thing I would add to what has already been said is an assumed investment return to go along with the inflation assumption - for example, we're currently re-paving roads at a current cost of roughly $250,000 - assume we re-pave again in 20 years and also assume annual inflation is 3% - assuming a 5% return would require about $13,655 per year going into reserves whereas a 2% assumption would take roughly $18,583.

i think HOAs can do their own study with the help of a knowledgeable homeowner or contractor - once all the things needing eventual replacement are identified along with their expected lifespans it should then come down to picking appropriate assumptions for inflation and investment return.

as we all know today's interest environment is very low - in the above example the question becomes what to asume over the next 20 years - historic averages for bonds and money market investments can serve as a guide.

Janet,

Thanks for the advise. I hadn't thought of using the city planners for the cost data. I am currently playing around with some Reserve Study software to see what it has to offer us. The biggest issue is still being able to convince the homeowners we don't have enough funds in the bank to handle the future. Too many homeowners what to use "do it as it happens" methodology instead of doing everything in increments, as it should be done. After 13 years we finally had our roads coated (not repaved) last year. While they look pretty good after one year, I am seeing a lot of cracks in the roadways. Might have to recommend to the next board they consider patching or filling the cracks, vice a total repaving. Also, fighting the "don't ask - don't tell" homeowners who feel we shouldn't tell the community the HOA is responsible for all the sidewalks and part of the driveways. They believe if the homeowner wants to replace the sidewalk because they are uneven and may cause a safety incident, then let them do it! However, my viewpoint is if someone sues a homeowner for medical coverage after tripping on the uneven sidewalk, then it will come back to us anyway since a smart lawyer is going to know the HOA is responsible for the sidewalks.