Re: Reserve Studies
From: Christine Johnson (manzjohnsonnetzero.net)
Date: Thu, 23 Aug 2007 10:23:19 -0700 (PDT)
Sharon Villines, Takoma Village Cohousing wrote:

>There is a thread on this in the archives. We have a professional reserve analyst do our study every 3-5 years and it is of great value in assessing the condition of our systems as well as supplying information about the economic and construction environment.

Sharon's point is well taken. In addition to the community having an accurate projection of funds required plus a major maintenance schedule which most reserve study providers develop for their clients, having a professional study protects both those owners in it for the short term and those in it for the long term.

For those in it for the short term, on a resale you can offer your potential buyers a strong financial needs analysis and if the reserve funding schedule has been followed, a good reserve account in place. Increasingly, real estate agents are as savvy as lenders in looking carefully at a Homeowner Association's (HOA) reserves on account. If reserves are underfunded, a lender may not qualify a buyer or the real estate agent, acting to protect the buyer, will advise against a purchase offer.

For those in it for the long term, having a strong financial needs analysis and a properly funded reserve is only fair; everyone who benefits from the common amenities should meet the costs in an equitable fashion. Without a financial needs analysis, a good one, communities end up relying on recurring special assessments which, in addition to being hard on one's personal finances, are hard on everyone who has to struggle through to an agreement in which folks have competing interests.

Unfortunately, there are a lot of HOAs out there whose owners acted only in their own immediate term interests and did not fund reserves to an adequate level whose common elements have deteriorated to the point that folks who want to get out, can't sell. Not to mention that the cost of substantial repairs that are due to neglect are often much higher than ongoing maintenance would have been had it been completed on schedule. The AZ State Legislature will likely follow CA in requiring HOAs complete a professional reserve study; AZ is catching up to CA in construction defect cases against developers, sadly.

In our community, we contracted for a study early on and are at the end of our of our second year of funding the reserves based on Reserve Advisor's recommendations; IMO, it was worth every penny. For example, we now have an unanticipated major plumbing repair that will draw against our reserves and while it's not a happy outcome this early in our development at only three years old, we've got the money set aside. No worries!

Christine Johnson
Tucson, AZ

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