How a Strong HOA Reserve Fund Affects Home Prices!
Reserve contributions are often relegated to “what’s left” status in the budget process, regularly characterized by Board members and homeowners, as a problem for future owners. We’ve been challenging this way of thinking for over 30 years, and finally, there's proof that we hope will change the way HOA Reserve Funds are perceived – redefining them from a resented expense to a wise investment.
I recently recruited one of our Reserve Specialists to help me c
orrelate the sale price of a unit in an Association-governed community (measured in $/Square foot) to the Reserve Fund Strength (measured in % Funded) of the Association. My intuition suggested that there had to be a direct relationship, so we set out to find and analyze the data. The first step was to identify a very small geographical area in a very large city where we had performed a high density of Reserve Studies… almost 100 comparable associations within the last year. We then researched the home sales in those associations in the last year, finding sales in a statistically significant data set of 72 of those associations. We then cross-referenced sales price ($/sq ft) to the Association’s Reserve Fund strength (% funded). The results were remarkable.
As we looked further into the data, we noted that the difference between homeowner assessments in associations making “inadequate” Reserve contributions and associations making “adequate” contributions averaged $50/month, or $600 per year. Spending $600 a year to maintain home values $44,000 higher would have to be considered a wise investment by any measure!
orrelate the sale price of a unit in an Association-governed community (measured in $/Square foot) to the Reserve Fund Strength (measured in % Funded) of the Association. My intuition suggested that there had to be a direct relationship, so we set out to find and analyze the data. The first step was to identify a very small geographical area in a very large city where we had performed a high density of Reserve Studies… almost 100 comparable associations within the last year. We then researched the home sales in those associations in the last year, finding sales in a statistically significant data set of 72 of those associations. We then cross-referenced sales price ($/sq ft) to the Association’s Reserve Fund strength (% funded). The results were remarkable.
The Numbers Don't Lie
Home values were 12.6% higher in associations with a strong (over 70% Funded) Reserve Fund than homes in associations with a weak (under 30% Funded) HOA Reserve Fund. Since the average sale price of a condominium unit in this geographic area was just over $350,000, this meant that units in associations with a strong Reserve Fund sold for $44,000 more than units in associations with a weak Reserve Fund.
As we looked further into the data, we noted that the difference between homeowner assessments in associations making “inadequate” Reserve contributions and associations making “adequate” contributions averaged $50/month, or $600 per year. Spending $600 a year to maintain home values $44,000 higher would have to be considered a wise investment by any measure!