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 correlate 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!
When the HOA reserve Fund is strong, projects get done, and they get done on time. An Association with no roof leaks, fresh paint, smooth & inviting asphalt and sidewalks, and regularly renovated lobbies and elevators will maximise curb appeal and that translates to units that command a higher price.
A strong HOA Reserve Fund is also an indicator of fiscal responsibility — a Board of Directors that is running the association in a responsible, businesslike manner. This typically means financial statements available for review, open and honest board meetings, and effective & transparent communication with homeowners. In other words, a peaceful and productive community, a nice place to call “home”!
For a long time, you’ve heard that adequate Reserve contributions are “the right thing to do”. Now you know they are also a smart investment!
- Does Your Association Have Adequate Replacement Reserves? - February 7, 2019
- Boost Property Values with HOA Money Management - October 10, 2018
- How a Strong HOA Reserve Fund Affects Home Prices! - September 6, 2017