Question: How often do Condo Associations and HOA/POAs need to conduct a Reserve Study?
Virginia Requires New Studies Every Five Years
In light of the recent condo tragedy in Miami, I thought it would be a good time to remind everybody that Virginia requires Condominium Associations and Home Owner/Property Owner Associations to conduct a new Reserve Study at least once every five years.
In addition to providing valuable financial/budget guidance, Reserve Studies are also an important way to ensure your building/community remains in safe working order and structurally sound.
What is the Purpose of a Reserve Study?
During the Study, an engineer, or team of engineers, will inspect all common elements of the building/community to provide an assessment of current condition, useful life expectancy, and projected cost of repair/replacement. A building inspection includes everything from the elevators, to foundation, to hallway carpet.
After the inspection, the Study team will provide a detailed report of their findings and an assessment of the future financial needs of the Association over the next 30 years to maintain and replace the common elements of the building/community.
In most cases, these annual financial needs are analyzed against the current Reserve Balance (Association’s savings to pay for common maintenance and replacement costs) and the current Reserve Contribution amounts to determine if adjustments need to be made to the contribution levels in future budgets. Accelerating savings for an under-funded Reserve are one of the most common reasons Associations increase dues. If the funding requirement is high enough and the repair/replacement needs are urgent, that is when Associations will consider charging a Special Assessment to fund the Reserves immediately.
Don’t Forget About Presentation
I have reviewed tons of Reserve Study reports over the years and there is a wide range in quality. In my opinion, a quality report should not only be incredibly detailed in the inspection findings, but also as detailed in the presentation of the financial projections/recommendations. It’s also critical that this information be presented in an organized and easily understood format, which is not an easy feat when dealing so much information. If you are helping your Association choose a company to lead the Reserve Study, don’t forget to review reports they’ve produced for other communities so you can see how well they present their findings.
Important for New Buyers Too
In addition to Reserve Studies being important for building maintenance and budgeting, every new Buyer into your community will receive a copy of the Reserve Study (along with a other Association documents) once they’re under contract and has a three-day review period in which time they can void the contract for a refund of their deposit. So having a current and easily understood Reserve Study report is also a critical part of keeping Buyers under contract and the resale market in your community from under-performing.
If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at Eli@EliResidential.com.
Video summaries of some articles can be found on YouTube on the Ask Eli, Live With Jean playlist.Reserve Studies Required Every Five Years for Condos/HOAs