A professional HOA reserve analyst is an asset to any community. Unfortunately, far too many associations forgo hiring one for various reasons, including budgetary constraints. All things considered, though, the benefits of hiring a professional analyst far outweigh the costs.
What is an HOA Reserve Analyst?
An HOA reserve analyst is a professional who conducts a reserve study or analysis. Professional reserve analysts help ensure the financial stability and long-term viability of an HOA and its assets. With an accurate reserve study on hand, HOAs can carefully plan for future costs while simultaneously protecting the financial interests of homeowners.
Are All HOAs Required to Have a Reserve Study?
Whether or not an HOA must conduct a reserve study depends on state laws and the governing documents.
In some states, associations are required by law to plan for their reserves. California is one of them. According to Civil Code Section 5550, HOA boards must conduct a reserve study at least once every three years if the current replacement value of the HOA’s major components is equal to or greater than half of the association’s gross budget. The board must also review the reserve study every year.
If there is no statutory requirement to conduct a reserve study, an HOA must check its governing documents. The governing documents may require the association to perform a reserve analysis or study, including information on how often it must review this study.
Even if state laws and the governing documents are silent, an HOA would still benefit from conducting a reserve study. Reserve studies allow associations to plan for future costs and accurately incorporate contributions into the budget. This way, when the need arises, an HOA can safely dip into its reserves without needing to levy special assessments or considerably raise regular dues.
The Benefits of Hiring a Professional HOA Reserve Analyst
While California law does not specify who should conduct reserve studies for HOAs, it is best to hire an independent reserve analyst for the job. Most governing documents require an HOA reserve study professional to perform it anyway. Even without such a requirement, though, there are several reasons why hiring a professional reserve analyst is the way to go.
1. Compliance
Different states have different laws regarding reserve requirements and review frequency. An HOA reserve analyst can ensure compliance with these requirements because they are more well-versed in the reserve study laws in their state.
The same goes for governing documents. Not all associations have similar requirements. A professional reserve analyst can review the provisions of an HOA’s CC&Rs and bylaws and ensure compliance with them. They know to understand the technicalities and jargon involved, often better than the board or community manager.
2. Expertise
Most professional HOA reserve analysts receive training and education to perform reserve studies. As such, they are better suited to conduct them.
Reserve analysts know how to perform various types of studies. These include a full reserve study, a study with a site visit, a study with no site visit, and annual reviews/updates. They also typically offer customized services depending on the community’s needs.
Furthermore, reserve analysts are well-versed in carrying out both parts of a typical reserve study. They can perform the physical analysis, which assesses the physical condition of the community and its assets. This includes estimating the cost of repairing and replacing major components in common areas. They can also perform the financial analysis portion, which reviews the HOA’s current financial health.
From there, reserve analysts can develop a financial plan for the association. This plan includes how much an HOA needs in its reserves at any given time and the dollar amount of contributions it must make every year to maintain the appropriate fund level.
3. Experience
Reserve analysts have the necessary experience to help associations prepare their studies. They have the proper industry accreditations that serve as evidence of their proficiency. They often have backgrounds in accounting, engineering, architecture, and other roles that can supplement their analyses.
Moreover, reserve analysts usually pursue continuing education to keep up with the latest developments, industry trends, and standards. Associations can also ask for references or samples of past work to understand their work better.
4. Liability
There is a greater risk of potential liability when an HOA board takes the reserve study into its own hands. Hiring an independent specialist minimizes the association’s exposure to liability. Reserve analysts or specialists often have guarantees and warranties written into their contracts. Furthermore, when an HOA board prepares the study, it arguably breaches the Business Judgment Rule.
5. Objectivity
Professional reserve analysts offer an objective, unbiased perspective crucial for making informed decisions about reserve funding. This impartiality helps avoid potential conflicts of interest or biases that more commonly arise when the board conducts the study internally.
In addition, hiring an HOA reserve analyst helps shield the board from potential criticism. Homeowners who dislike the board will usually challenge or contradict any decision the board makes, including matters pertaining to reserve funding. With an independent or third-party analyst at the helm, homeowners can’t claim that the board used biased judgment to conduct the study.
6. Cost
Budgetary constraints are one of the major factors keeping HOAs from hiring a professional. However, reserve analysts offer various options suitable for every budget. Plus, smaller communities usually command a lower price for reserve studies.
7. Assurance
Hiring an independent reserve specialist gives board members and homeowners peace of mind. It is reassuring to know that the HOA’s physical and financial assessment rests in capable hands.
How to Select an HOA Reserve Analyst
Choosing the right HOA reserve analyst is essential for obtaining a reliable and accurate reserve study. Here are key steps and considerations during the search and hiring process.
1. Establish a Budget
The first step in hiring an HOA reserve analyst is establishing a budget. Not all associations have a large budget for reserve studies. Only a few associations dedicate some of their funds to this expense. However, the importance of reserve studies should be accounted for.
Once an HOA has set a budget for its reserve study, it can begin the search process. The established budget will help narrow down choices and remove expensive analysts from the running.
2. Determine Needs
What type of reserve study does the HOA need? This question should be answered at the beginning of the selection process. Determining whether the HOA needs a full study, a study with no site visit, or a simple update will help streamline everything.
3. Check Credentials
Look for reserve analysts with recognized certifications and credentials. The Community Associations Institute (CAI) offers the Reserve Specialist (RS) designation, which indicates that the professional has met specific education, experience, and ethical standards. Other certifications to look for include the Professional Reserve Analyst (PRA) designation from the Association of Professional Reserve Analysts (APRA).
4. Ask for References
It helps to ask for references to check the quality of work. References will allow the HOA to gauge whether or not a particular analyst is a good fit for the community. Expertise and experience should be considered, as well as work ethic and values. Ensuring these align with the HOA is critical to a good working relationship.
5. Verify Insurance
A professional reserve analyst should have the proper insurance coverage in place. Liability insurance is a must, as it protects both the HOA and the analyst in case of omissions or errors.
6. Request a Sample Report
An HOA should ask the reserve analysts for a sample of their previous work. The report should be clear, comprehensive, and easy to understand. It should contain detailed information on the condition of the assets, projected costs, and funding recommendations. Visual aids like graphs and charts also help the board grasp the findings better.
7. Evaluate Methods
The analyst’s methodologies must use industry-standard practices. When asked about their process, reserve analysts should offer transparent explanations. A good methodology also considers factors such as inflation, interest rates, and other economic conditions.
8. Gauge Responsiveness
Effective communication is essential for a successful working relationship. Evaluate the analyst’s communication style, responsiveness, and willingness to answer questions. They should be approachable and able to explain technical concepts in plain language.
9. Review Contracts
The HOA should request detailed quotes from multiple reserve analysts and compare the costs. Be wary of unusually low bids, which may indicate a lack of thoroughness. Boards should review the contract carefully to understand the terms and conditions, including payment schedules, deliverables, and additional services. A good contract should also include guarantees and warranties.
Everything Considered
A reserve study is a fundamental tool in ensuring a homeowners association’s financial health and stability. Not everyone can properly conduct a reserve study, though. Even with no requirements in place, hiring an HOA reserve analyst to perform this study is best, as the benefits are clear and convincing.
Personalized Property Management offers HOA management services, including help with reserve study reviews, around Southern California. Call us at 760-325-9500 or email us at info@ppminternet.com for more information!
RELATED ARTICLES: