By Evelyn Dufford, PCAM
Washington State now requires that the majority of Homeowners Associations have a Reserve Study. There are three ways in which a Homeowners Association would not have to have one. They are; 1. Communities have 10 or fewer homes, 2. The cost of a Reserve Study is greater than 5% of the Annual Budget of the Association, 3. If the community does not have significant assets.
So what are significant assets? The legislature was kind enough to define it for us in the new law. RCW 64.38.010 reads, “(19) “Significant assets” means that the current replacement value of the major reserve components is seventy-five percent or more of the gross budget of the association, excluding the association’s reserve account funds.”
So the next logical question is how do we determine the reserve components and the replacement costs? One way to start would be to gather the Board members on a Saturday morning, several pots of coffee and the governing documents. Determine the community’s assets by going thru the Declarations and the By Laws for the clues. The definitions help as well as the past bookkeeping records. What has the Association replaced in the past that cost a great deal of money? Make your preliminary list of components. Now let’s hit the road. Take a walk with the list and a clip board. Look at all the things that are taken care of by the Association. Fences, drainage ponds, entrance monuments, lighting and roads are just some of the big ticket items to consider. There are many more. Now comes the fun part; calculating the replacement costs. You can bother vendors for bids or go to Home Depot for some cost analysis. Either way a reasonable cost estimate will need to be put to each of the components. Then the math equation is to add all the replacement costs and see if 75% of this year’s budget is more or less than the costs. You have your answer!
A second way is to consider hiring an expert. Association Services is excited to be teaming up with Cedcore to offer a Community Component Review. This service will review components gather up all the costs and do the math for you. The bonus is that you as a Board member will have met your due diligence standard and you haven’t used up a Saturday morning.
Give us (253 840-1200) or Cedcore (253 292-2125) a call for further details.
