A couple of months ago, the Foundation for Community Association Research conducted a survey of almost 400 community managers.
When asked whether or not the associations had a formal reserve fund, 93% of respondents stated that their association did, but the most interesting find of the survey has to do with the level of funding within these funds.
When asked the question “How does the association determine how much to keep in the reserve fund?” almost 20% responded with “What the association can afford to set aside,” but that they “do NOT believe is adequate”.
While almost 75% of survey respondents indicated basing their reserve fund levels on the recommendations of professional Reserve Specialists, over 25% indicated that the amount in the Reserve Fund is dictated by whatever the association can afford to set aside.
For Homeowners Associations and Community Managers, this scenario can quickly become dangerous if a costly or emergency repair arises. More importantly, is that ultimately the reality and cost of underfunded reserves is passed on to the homeowners themselves. If an HOA can not properly maintain roads, pools, or roofs the value of residents’ properties may be harmed. When HOA’s resort to special assessments, the cost to owners can run in the tens of thousands of dollars – no small expense for the average homeowner.
For owners and buyers, here are some quick tips to help you evaluate the financial health of an HOA:
- If you are a buyer, demand that the seller provide you with copies of the most current financials for your review.
- If you are an owner, make sure that you are given annual financial reports, especially the delinquency report and those pertaining to the adequacy of the reserve account.
- If you are a buyer, do a physical review of the property and observe how the common areas are maintained. For example, assess the condition of exterior paint, amenities, roads, roofs, drives, fencing, etc.
- If you are an owner, be involved with the board and its decisions, especially when you see deferred maintenance of common areas or are subject to special assessments.(Joseph Aiu, California Department of Real Estate, 2012)
For more information on the effects of Underfunded HOA’s, read this Consumer Warning from the CA D.R.E.
All images taken from CIARF.org’s Snap Survey : Reserve Studies and Funding.
Click here to download the report.
To find out more about our procedures for conducting reserve studies, or to be in touch with a reserve study specialist click here or give us a call at (800) 543-8670.Button Text