Initial Reserve Study Sticker Shock

DeryckB,

-- Does the Declarant still control the majority of the board's seats?

-- In my opinion, based in experience, performing full, professional reserve studies every five years, and if possible, having a appropriately skilled director or HOA member update the spreadsheet yearly, is the gold standard.

-- You should ask the reserve study company why projections to the 30-year point there is an excess in the reserve fund. For now, I would speculate that this is simply because the life expectancies of capital components are of course not all 30 years; or some nice round whole number factor of 30 years, like five years; or similar mathematically. For example, some capital components may have life expectancies of 40 years.

-- Because a study should be performed every five years, I would not pay too much attention to the 30 year projections.

-- Still, I want the 30 year projections in the reserve study. One has to make some assumptions here, as a starting point to ensure that the HOA is appropriately saving over the years, so the costs of maintaining the common areas are spread out as equally as possible over multiple owners, and more importantly, so either a large special assessment or a large loan by the HOA is never necessary.

-- Another huge assumption reserve studies make is for the yearly inflation rate. The costs of parts and labor can vary wildly over 30 years. But as I indicated, assumptions made initially, combined with a new reserve study every five years and possible tweaking yearly help protect a HOA from any incorrect assumptions.

-- Experience says that no way no how will this reserve study's 2021 projections turn out to match exactly what happens, expenditure-wise, to reserve components over the next 30 years.

-- Once your board has reviewed the reserve study, discussed the assigned life expectancies and best estimates of costs to replace components, had the reserve study company tweak as appropriate certain line items, then the assessment should be set as the reserve study indicates. No delays. One year of so-called "experience" will tell one nothing about how a component ages and what the component's major maintenance yada needs are ten years down the road. What is important is doing a new reserve study every five years and then seeing if the regular assessment to owners needs adjustment.

-- One has to get comfortable with reserve studies being an inexact science, but one that is necessarily essential to good financial planning of a HOA/COA. Those who are not comfortable with this have poor applied math skills and/or a poor handle on the realities of infrastructure aging.

The HOA's have this battle about Replacement Reserves contributions all of the time. The example of the condo that collapsed is a direct result of this battle. It is hard to convince owners to give money for something that is a long ways down the road. It is usually the second generation of Owners that end up with the shortage of dollars in the reserve when the replacement time comes.

A properly designed reserve study will take some of the anxiety of sticker shock away. If you had an HOA established 30 years ago and renewed the reserve study every 5 years, there are variables that account for inflation. Maybe you need to find a different company to complete your RS.