subject: The Importance Of A Reserve Study [print this page] When anyone who has been a member of a Homeowner Association Board knows that things will wear out and, unanticipated expenses will occur. In general, there is no way to predict the future. For this reason, it is important that any Homeowner's Association do a reserve study which consists of a careful analysis and a prediction of future happenings.
A reserve study is considered a special plan used by people in an organization who can anticipate and prepare for the necessary expenses. These expenses will be encountered in repairing and replacing necessary things in the common area or other operations connected with the association. It provides for the establishment of funds to take care of these occurrences in a timely manner. By putting money into this special allocation, it is simple matter to take care of these problems.
Homeowner's Associations are a very good example of a reserve study, although it is often used in the business world as well. When one purchases a home or condominium where such an association exists they must contribute a monthly payment to the association. This Association Board takes care of a fund which will be used for replacements or repairs in the neighborhood. In this manner, the home or condominium owner does not have to disturb their monthly cash flow with a huge expense when such an event occurs.
Having a reserve fund in place relieves a Homeowners Association of having to invoke special assessments when necessary repairs or replacements have to be made. This eliminates any drain on the association's fund and still allows all areas and other things to be kept in tip top condition. For true emergencies, a special assessment should be made and this fund not touched.
Any association or company that is responsible for keeping things running smoothly must use advance planning. With advance planning it should be known what the physical assets are and have an estimate of their life expectancy. By careful research this information is readily at hand which makes it fairly easy to make a close calculation of how much money is going to be needed at a special time.
When using a special fund, to which contributions have been made, and which is created for the replacement and repair of physical assets, there is no necessity for special assessments when they occur. It should be understood by the members that when there are emergencies, not anticipated, there will be some kind of special assessment imposed. With this plan in place, one has covered all areas for anticipated needs.
There is a great responsibility on the Board members of an Association. They are corporate officers and, as such they not only have a legal responsibility but a moral one as well. Being aware, and planning for, the deterioration or needs of the common area, will allow the association assets to be maintained and result in secure budgets and congeniality relationship with the homeowners.
