Definition: Reserve Accounts

Reserve accounts (also referred to as "reserve funds" or simply "reserves") are funds set aside by the homeowner association to pay for the replacement or repair of community property. Reserves are intended to prevent the need for special assessments.

A key point: special assessments are a bad practice, and an association should only resort to them for unforeseeable major expenditures. According to most experts, reserves are intended for funding “major maintenance, repair and replacement of common elements, including limited common elements that will require major maintenance, repair, or replacement in more than one and fewer than thirty years.

* Credit to Reserve Analysts & Robert Nordlund

(Current Reserve Account Balance / Fully Funded Balance) x 100 = Percent Funded

Does Percent Funded Matter? Yes, the percent funded calculation does matter, and reserve analysts’, lenders, buyers and associations use it in determining the risk level associated with a specific reserve account balance. It’s important that boards view a longer-term outlook of percentage funded and not just one or two years to base budgeting decisions, or to fund non-essential projects. As noted above, percentage funded numbers will fluctuate from year to year and it’s the overall long-term trend which has proved to be most important when developing a long-term funding strategy.

* Source of data: ProForma Budgets

Percent funding of reservers for a complex of high-rise buildings should not double in one year unless a very large project was completed or an expert study revealed unexpected conditions. Neither happened in 2019 or 2021.  

In past years, the board held a town hall meeting to answer owner questions or concerns about the budget before they voted. That stopped when FirstService was hired.  I support town hall meetings for gathering owner input and addressing their concerns.