In its simplest form you can think of a Reserve Study as two basic parts: Physical Analysis and Financial Analysis. An updated Reserve Study allows communities to anticipate and prepare for major repair and replacement costs.
Read more: What is a Reserve Study?
A properly funded Reserve according to an up-to-date study will allow your community to thrive both aesthetically and functionally. As a result, you can expect sustained and in some cases, increased property values. Due to the sub-par condition of the real estate market, we’re even seeing lenders review Reserve Disclosures, particularly Percent Funded (See Reserve Glossary), when considering whether or not to fund new home buyers.
Read more: Reserve Studies: Like a FICO Score for HOAs
However, Reserve Studies are more than “good business”. In California, it’s the law.
There are 4 basic things to remember when it comes to Reserve Studies and California Law:
1. Every 3 years you must complete a Physical Inspection.
2. Every year you must complete an Assessment and Reserve Funding Disclosure (ARFD).
3. Every year, in order to complete the Reserve disclosure, you must you must do a Level 3 Update (Financial Update).
We get this question all the time from our clients: “does the law require us to fund our reserves?”
Communities who fail to prepare updated Reserve Studies and underfund Reserves are often forced to defer common area maintenance and repairs. This is a mistake that inevitably leads to falling property values, costly Special Assessments and financial implications for new home buyers considering your community.