Reserve study????

Started by MarilynN1 • 5 replies • 1324 views

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MarilynN1 (Michigan)
Posts: 30

Posted:

My condo's By-Laws say nothing about a Reserve Study in them.............only keeping 10% of our annual budget in a Reserve Fund. For the last 40 years they seem to be content with that. They have assessments when needed.
They did hire a Reserve Study company back in 2009 ( it was very expense) and they suggested we should have a larger reserve. Of course, the economy was terrible and nothing was ever done regarding a larger Reserve. A few years ago, our Property Manger (who is terrific and with us for 25 years) and a Board Member got together and put together what needs should be met for the next 10 years referring to the paid for Reserve Study. We have a spreadsheet from them on what was accomplished and what needs to be done in the future. Our PM knows our HOA better than anyone and is very dedicated to our community.
My question is.........is it the norm to have a Reserve Study done in your community? Remember...it's not in our By-Laws.
Thank You

MelissaP1 (Alabama)
Posts: 13,836

Posted:

We never had a reserve study done in my HOA. Several reasons. It's really just a "good business" practice than a rule. Not every HOA needs a reserve study. I would if it's a condo and have expensive shared common property like roofs and roads. Otherwise if it's just a HOA that's for rule enforcement and little common property, it's not worth the expense.

There are things besides maintenance that should be included in a reserve expenses in my opinion. Those would be things like what insurance won't cover. Your clubhouse burns down and it's only insured for $80K but will take $100 in today's dollars to rebuild. Your HOA will need to have that difference available or to have a special assessment. Also take in account your HOA should update it's rules every 5 - 7 years as laws and conditions change. That can cost several thousand dollars to complete with legal, filing costs, and copying/distribution.

A HOA is ONLY funded by it's member FOR it's members. There's no other income source for a HOA. Either you all have an adequate reserves or be okay with having special assessments incurred.

Former HOA President

TimB4 (Tennessee)
Posts: 21,059

Posted:

Marilyn,

Some States require Reserve Studies. Check your applicable State laws to see if your State requires one.

Most lenders are now looking at the financial health of Associations when deciding to make loans to buyers. Therefore, I believe it's a Boards fiduciary duty to perform a Reserve Study and take steps to fully fund the Reserves.

For more information about Reserve Studies see the following:

Subject: Reserve Studies/Funds 101 a thread within HOAtalk.

Webinars Links to various video seminars (webinars) that deal with Reserves and Reserve Studies. These can also be found on Youtube.

MarilynN1 (Michigan)
Posts: 30

Posted:

Thank you Melissa and Tim.
I appreciate your comments and yes Tim......I have gone into the sites you suggested. Thanks again!!! Gives me direction on starting this project.

DaveD3 (Michigan)
Posts: 796

Posted:

Marilyn, are you a condo association?
If so, the Michigan Condominium Act and promulgated rules don't require a reserve study, but they recommend one. That's likely where the minimum 10% of annual budget figure comes in.

This isn't the official state website (thought I had it bookmarked), but the condo rules are here:
http://www.meisner-law.com/mi_condo_admin_rules1.htm#r511

KellyM3 (North Carolina)
Posts: 2,239

Posted:

Quote:

Posted By MarilynN1 on 12/03/2013 7:06 AM
My condo's By-Laws say nothing about a Reserve Study in them.............only keeping 10% of our annual budget in a Reserve Fund. For the last 40 years they seem to be content with that. They have assessments when needed.
They did hire a Reserve Study company back in 2009 ( it was very expense) and they suggested we should have a larger reserve. Of course, the economy was terrible and nothing was ever done regarding a larger Reserve. A few years ago, our Property Manger (who is terrific and with us for 25 years) and a Board Member got together and put together what needs should be met for the next 10 years referring to the paid for Reserve Study. We have a spreadsheet from them on what was accomplished and what needs to be done in the future. Our PM knows our HOA better than anyone and is very dedicated to our community.
My question is.........is it the norm to have a Reserve Study done in your community? Remember...it's not in our By-Laws.
Thank You

That Reserve Study will help you immensely as it will list what needs to be done in the coming years. Your property manager is really beneficial in crafting a possible plan. It's too bad the membership prefers the "pound of cure" instead of the "ounce of prevention" in better funding your Reserve Fund. Special assessments can complicate private home sales.

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