General input on what % of dues should be in Reserves?

Reserve money is money set aside to pay for future maintenance. If you have a gate, street, and landscaping, there are a number of future expenses you will have:

1. Replacement of the gate
2. Maintenance of asphalt street (sealcoating and crack sealing)
2. Repaving of the asphalt street (since it is private)
3. Maintenance of concrete sidewalks
4. Replacement of concrete sidewalks.

A reserve study will tell you if $48k in reserves is sufficient. Whether it is or not depends a lot on the age of the features listed above and the estimated cost of replacement.

Have you asked for the latest copy of the reserve study?

Do you have lighting on he streets that 's the HOA's responsibility?

I'd guess that there is no reserve study, but without one you are just taking a wild guess. Reserve contributions should be based on the reserve study, not some arbitrary % of dues.

I agree. They need a Reserve Study.

If you haven't had a reserve study, you could check to see if there is anything in your state's laws governing HOAs and see what they said. Some state laws call for a minimum amount. But this minimum amount can give you a false sense of security.

I echo others' comment that you need a reserve study. Two apparently identical communities could have very different reserve funding needs, since these will depend in part on whether boards have underfunded in the past or if one community had some unusual expenses (for example, a storm could have done significant damage in one but bypassed the other).

A rule of thumb is a new reserve study at least every five years, with more frequent ones if something happens to make previous projections inaccurate. Communities should be thinking about doing new ones now since we're seeing noticeable inflation after many years of fairly stable prices - so previous estimates may have underestimated future costs.

If the Oregon HOA statute sections for reserves apply to the OP's HOA, then his HOA is required to have a reserve account. In particular:


(3)(a) The board of directors of the association shall annually determine the reserve account requirements by conducting a reserve study or reviewing and updating an existing study using the following information:

(A) The starting balance of the reserve account for the current fiscal year;

(B) The estimated remaining useful life of each item for which reserves are or will be established, as of the date of the study or review;

(C) The estimated cost of maintenance and repair and replacement at the end of the useful life of each item for which reserves are or will be established;

(D) The rate of inflation during the current fiscal year; and

(E) Returns on any invested reserves or investments.

(b) Subject to subsection (8) of this section, after review of the reserve study or reserve study update, the board of directors may, without any action by owners:

(A) Adjust the amount of payments as indicated by the study or update; and

(B) Provide for other reserve items that the board of directors, in its discretion, may deem appropriate.

(c) The reserve study shall:

(A) Identify all items for which reserves are or will be established;

(B) Include the estimated remaining useful life of each item, as of the date of the reserve study; and

(C) Include for each item, as applicable, an estimated cost of maintenance and repair and replacement at the end of the item’s useful life.


As like everyone here is pointing out, dues are set by the sum of annual operating expenses and reserve needs. Operating expenses are guestimated based on the past. Reserve needs are /set/ by a reserve study. Budgeting is not an exact science but nonetheless, the more information that goes into budget planning, the better the budget will serve the HOA.

I would not read the covenants and statutes this way. Especially given the detail that I quoted from the Oregon HOA statute (which may or may not apply; more research is needed).

The Board has a duty to maintain the HOA. In my opinion failing to fund the reserves per professional guidance violates this duty. Would a court agree? Maybe.

Bob,

As others have eluded to, there is no rule of thumb for reserves. This is because reserves amounts are based on the type of capital components an association has, their current condition and expected life span. Since every Association is different, this is different for each association.

I've seen many States require Reserve studies for Associations. Reserve studies identifies and evaluates each component and then determines how much should be in the reserves now and how much should be contributed to the reserves. That said, I've not seen any statute or governing document that requires Reserves to be 100% funded (although that might change due to the building collapse in FL). As others have said, each board makes the decision to fully fund the reserves or kick the can down the road.

My previous Association had private roads to maintain. Our costs for paving was $16 per square foot. We had over 10,000 square feet of roadways. This was the boards previous concern. Unfortunately, they were only putting left over operating funds into the reserves and discovered that they were going to be short. Therefore, they requested a 10% increase in assessments (anything over 5% required membership approval).

I lobbied against an increase in assessments because a full reserve study was not done. My lobbing efforts were successful and once a full study was completed it was discovered that assessments needed to be increased by 20% to fully fund the reserves.

So, as others have said, the amount you need to have and need to be placed in reserves is determined by a reserve study. For more information on reserve studies see the following thread on this forum:

Subject: Reserve Studies/Funds 101

Note, some of the earlier links in that thread are broken and were repaired later in the thread. Some of the later links are simply broken.

Unfortunately boards are usually able to adjust the results of the reserve study if they feel that they're "inaccurate".

I think that estimates of things like future inflation rate can be open to debate, and it's possible that a director with a lot of finance experience could have a good handle on it. On the other hand, the folks who do the reserve studies should be the experts at determining remaining useful life of components - and if the board wants to disagree with their assessments, they need to come up with some hard data and not just "our PM is doing an amazing job".

Another issue with reserve requirements that I've seen is that even in states that have minimum requirements or whose laws say that reserves must be funded in accordance with the most recent reserve study, there may be language in the law that allows an exception to this if the majority of homeowners vote to underfund. This is the case in my state. It's like the law was intended to prevent associations from committing financial suicide but allows them to do it anyway if enough owners think it's a good idea. Too many people already engage in magical thinking when it comes to money, and it doesn't help when the laws encourage it.

Correction: cost of paving should be square yards, not square feet.
We have over 10,000 square yards of roadways.