Reserve Study Question

I am the treasurer on a HOA board in Washington State. We are required to have a professional conduct an on-site reserve study every three years. Years two and three do not have to be done by a professional.

Some of the board members want to do years two and three of the reserve study in house. My concern is that we are a new board and we're are in a very weak financial position with little reserves. I would like to have all reserve studies done professionally as there are reporting requirements and other liabilities. It will play a big role in how we determine future homeowner's dues. The cost of the studies for year two and three is $400 each. This works out to $5 per year, per home. Can you please give your thoughts on if we should spend a few hundred dollars in order to reduce liability and get a professional's opinion on how we should save/spend our reserves.

Your answer is going to depend in part on what sort of in-house expertise you have and your finances, as well as the state of your current reserves (minimal reserves says that you don't have much wiggle room) and the extent of your common areas.

It will help you if you are an HOA with single family homes and not much in the way of commonly owned items like a clubhouse (vs. a condo community with private streets in which the large majority of the property is common area and the association's responsibility).

Professional reserve studies can be expensive, although you can minimize the cost by getting bids, by being selective in what you ask for, and by staying with a particular company since they can do future updates to the initial study without charging you full cost. Try to read reviews of companies and get references. You may or may not want to go with a multi-year contract if you have no experience with the company.

Also, it's possible to stretch the time between full blown studies, assuming your governing docs allow this. Things that can let your increase the times between studies include 1. stable financial conditions (no big changes in inflation, interest rates or other things that will affect the cost of future repairs); and 2. few extreme weather events that can cause premature aging of buildings or environmental damage.

It's certainly possible for experienced board members to do a decent reserve study themselves with nothing more than their knowledge and Excel spreadsheets.

In your position (assuming newbie board members with probably inadequate reserves, single family home HOA with some amenities and possibly private streets), I'd be looking at getting a good quality professional study done first and then evaluating my position after than first study is done. I'd also be educating myself about reserve studies in general - there is lots of info on the web - and trying to build up in-house expertise so that we can do at least some of this work ourselves.

I disagree a bit with this.

If the maintenance is a yearly thing (like opening/closing the pool or snow removal) then this should be in the operating budget and not in the reserves.

However, if the maintenance is every 5 years or so (like sealing roads) then this should be in the reserve study.

I agree with Tim. Base it on your assets. We had one professionally done as we are anticipating a clubhouse to be constructed. I'm SO glad that we did.

Is it normal to have a reserve study every year? As someone mentioned already, reserve studies are long term. I think the minimum required (every 3 years) is sufficient.

The only reason to do them more frequently is if circumstances change in a way that makes previous assumptions wrong (because every reserve study will make assumptions on how the future is going to play out).

Examples of such things: significant changes in inflation or interest rates; changes in the cost of building materials; changes in amenities or other common areas (adding a new one, getting rid of an unused one); external conditions that force a change in how the community operates. Folks cite more frequent extreme weather events as shortening the useful life of things like siding and roofs, which condo associations are responsible for.

If things are very stable, though, and if the community has minimal common areas, then you can get away with doing a study every five years. I wouldn't want to go beyond that, though.

As the OP pointed out, they do an in house study every year in between professional studies.
In my State, we call this a review and it allows the board to adjust the study for inflation as needed.

Virginia mandates a study be done every 5 years and a review every year.
However, there is no requirement that the study be professionally done.

I'll take the OP at their word that their State requires a Study every 3 years.