Reserve planning is something that every homeowner association, regardless of size, should do because the HOA is entrusted with very expensive assets that affect member home values. Failure to maintain them causes home values to fall. The "reserve study" breaks down common elements into components and analyzes their current cost of repair or replacement and predicts when that event should take place. Reserve components come in all shapes, sizes and values. They are not all created equal.
When something fails, it fails, doesn't it? Well, sometimes. Sometimes not. A constantly leaking roof has clearly failed. But when do you decide that the gold shag carpet in the clubhouse has "failed"? Should replacement of the pool heater be handled differently from the boiler that provides hot water to the entire HOA? In the field of Reserve Studies, there are five general categories of failure modes.
Regular. Components in this category are items like siding painting and asphalt seal coating. These components require regular rejuvenation or the homeowner association will face significant related repair or replacement expenses.
Watch & Decide. Fencing is a typical component in this category. The gradual approach of failure may be apparent, but the actual failure point may be delayed or accelerated due to weather or maintenance. Replacing selected boards and posts may buy several more years of life than the average.
Benign. Components in this category are non-critical components such as pool heaters or clubhouse trash compactors. It is not a problem to stretch out the life and wait until the component fails, because the HOA can survive a few days without the component.
Catastrophic. The HOA depends on these components: main hot water boilers, elevators, entry access systems, etc. Failure of these components causes significant expense or disruption and often happens when the repair contractor charges double time. Being proactive and repairing or replacing them before failure is wise.
Obsolescence (technological or aesthetic). These components have live longer than they should because even though worn and due for replacement, they still serve an adequate function or are low priority. The gold shag carpet in the clubhouse, the outdated appearance of the elevator interior, and the old single floppy monochrome monitor PC used by the on-site manager are three good examples. Landscaping is another often overlooked item that becomes aesthetically obsolescent. New drought tolerant and pest resistant native species have been developed that not only improve curb appeal, they also significantly reduce maintenance and water needs.
Ideally, the HOA should fund reserves at a high enough level so that all reserve components are repaired or replaced when due. Member home values suffer when the common elements appear worn or outdated. However, when reserves fall short, decisions must be made. Understanding the different reasons why to replace a component helps that process.
Excepts from an article by Robert M. Nordlund, PE, RS. For more on Reserve Planning, go to Regenesis.net.
