What is a reserves fund?
During budget season, the term “reserves” tends to come up a lot. But what is a reserves fund anyway?
Simply put, the purpose of a reserves fund is to set aside money to offset the ongoing deterioration of common areas and amenities. It is basically a savings account for large repair or replacement projects. By spreading the cost over some time, it avoids having maintenance fees fluctuating wildly each year to fund various items such as roof replacement, pool resurfacing, vegetation replacement, etc., and it also ensures that current owners don’t pay the full burden. The SOA has separate reserves funds for Streets and Gates, The Club at Town Center (TCTC) and General Common.
For instance, the exterior of the Club at Town Center is about to be painted. That project is fully funded by reserves money set aside over several years for this purpose. In this case, the reserves money came from members who pay TCTC dues.
For reserves projects in our gated communities, such as street repaving, the money comes from members who pay Gates dues.
And for SOA common area projects, such as tree replacement, the reserves money comes from Common Area dues paid by all members.
How are the proper reserves amounts determined?
A reserves study expert looks at all of the assets in the association, determines the average life span of each one, calculates the replacement cost, then sets aside an amount each year toward that replacement. The Browning Reserve Group performs this service on an annual basis for the SOA, and a summary of the current year’s Reserve Studies is included in the Budget Mailers that are distributed annually to all homeowners.
The adequacy of the capital reserve fund balances, the accuracy of the reserves schedule, and the annual funding allocated to the reserves are reviewed and critiqued by prospective buyers and lending institutions. As such, the reserves have a direct impact on home resale values, lending risk, and the overall value and perception of the community. As you can see, the reserves funds are important pieces of the budget!