Often, HOA budgets appear falsely balanced because expensive items are omitted from the page. Roof repair jobs, elevator replacements, and parking lot repaving are all examples of items that tend to get left out. However, HOA boards need to prepare for these events, and an HOA reserve study can help.
What is an HOA Reserve Study?
A reserve study is an independent professional assessment. It inventories key components, estimates the cost of replacing them, and their remaining useful lives. It also calculates the annual contributions that need to be ready when those bills come around, which is something to consider during budget planning.
An association should work to contribute a manageable amount every year. A small contribution every year is always better than a $250,000 shock in year 15.
Most Associations are Underfunded
Association Reserves tells us (according to their Industry Insights Report, which covers >100,000 reserve studies) that approximately 74% of homeowners associations in America have underfunded HOA reserves, meaning that their reserves are less than 70% funded.
In fact, about a third of all associations have reserves that are less than 30% funded, automatically placing them into what Association Reserves categorizes as “weak.” The risk of special assessments is highest for associations in this group.
To be clear, underfunding does not equal savings or good-faith cost-cutting. It is basically a loan taken out against future owners. If an HOA board skips its reserve contributions and does not follow the HOA reserve study, the bill doesn’t just disappear into thin air. It just comes back later and lands on the head of whoever owns that unit at the time.
How to Read Percent Funded
Percent funded is by far the most important metric in the entire study. It’s a comparison of what the board actually has in its reserves, relative to what it should have given the age and condition of its components.
~70% or above is a good position to be in; below ~30% is pretty critical, and anything in between deserves attention and should consider improving reserves. Unfortunately, this percentage can vary depending on the HOA and its assumptions.
Some might stretch a roof’s useful life from 20 years to 30 years, and some might trim the replacement cost estimate. Either move improves the percentage without any money actually being saved. All this is to say: check the assumptions before trusting any numbers.
What Will a Healthy Board Do?
A healthy board will publish all of its data to all its owners and members. This ensures that anyone who wants to look through the data can do so. A weak board will bury information, edit assumptions to favor them, and restrict access for owners.
Always remember, a balanced budget that ignores a known liability is not balanced. All boards know this, and bad ones will try to hide it.
Overall, HOA reserve funding has shifted from a standard best practice to a test of governance. It now affects insurance availability, lender approval, buyer confidence, and long-term property values.
Boards that stay on top of their reserves get cheaper coverage and far smoother sales. Boards that don’t will eventually face significant problems. If you want help decoding your study or the rules in your state, that is what we are built to do. Just reach out.
Frequently Asked Questions
What is a good percent funded level?
Any HOA above 70% is generally in a good place. Anything below 30% is not.
How often should a reserve study be updated?
It is typically recommended that the reserve study be updated every three to five years. That said, any big cost changes or large projects can affect that estimate, pushing it sooner.
What should owners ask to see?
Every owner should be able to request and view the full reserve study and funding plan, as well as the item lifespans and cost assumptions underlying the percent-funded figure.
Building Strong Reserves
Conducting a reserve study helps your HOA prepare for the future. They give your board members a better picture of your HOA’s financial health, all while helping avoid being shocked by major expenses. In turn, having and following a reserve study can both protect the community and its homeowners for the long term.
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