Engaging Homeowners: Communicating the Important of a Reserve Study (2025)

Robert Nordlund 0:07
Today’s curriculum is all about engaging homeowners. So Brian and I are here to help you see how homeowners fit into your reserve needs, reserve planning and reserve communication. Before today’s session is over, we’re going to provide you with some key concepts that will lead to important strategies and talking points to help the homeowners at your association appreciate the important role their reserve funding makes in maximizing their home values, minimizing their special assessments and maximizing their enjoyment of the property. This is the outline we’re going to use today, walking you through the situation where boards set the budget and homeowners are obligated to pay. The details then of how the need for reserve funding comes about, some recommended strategies for communicating reserve funding to your homeowners, and then a few minutes at the end to wrap it up. Now it all starts with the idea that we are living in community, and I want to stress that word community, some things belong to the association that’s the common areas, and some things belong to the individual owners. So in one development, we have the association that owns the common spaces, whereas individual owners own either perhaps the inside of their condo units or their home in a planned development situation. So we have this division of responsibilities wherever you are. Deterioration is real. It’s expensive, predictable and ongoing. Mother Nature and Father Time don’t negotiate. So if we’re talking here about the cost of reserve funding, it’s driven by deterioration, and the bad guy here is mother nature and Father Time. We want to help press the community button and stress that all homeowners at the association are subject to the same cost, and that the bad guy here is mother nature and Father Time. It’s not the board, it’s not state law, so deterioration defines the cost that we’re trying to offset. It’s up to the board to set a budget that keeps up, that’s defined in your governing documents. It may be local state law, but you’ll notice I have an asterisk there, and I’ll get to that in the next slide. And it’s up the owners to pay their share when they became a member of the association. As part of becoming a member, they have rights and obligations. One of those obligations is to pay their assessments. And so, as Collie mentioned at the very beginning, it’s this partnership between the board who’s chartered with the responsibility to say, Hey folks, these are the bills that we need to pay, and the owner saying, got it, here’s my check. So we get to the point where I want to address this asterisk. Some boards have the power to set the budget, and that’s great. That may be per your state law, that may be per your governing document. In other situations, boards propose the budget and need to have it either approved or ratified by the homeowners. That’s a very different situation. Creates a different dynamic, where the board is sliding it out there for the homeowners to approve. They don’t have the authority to say, this is the way it’s going to be, and in those cases, we want to encourage you to think that that’s when you need to polish your salesmanship skills. You need to prepare to sell the budget to the homeowners. Don’t just lay it out there as a question, asking them, Hey, folks, do you want a higher assessment rate or a lower assessment rate, because you know what they’ll choose. You’re going to have to lobby for it. You’re going to need to tell them why it’s in their best interest, why it’s worth a few more dollars per month. In other words, thank you for joining us today, because by following along, we will help you prepare for this important discussion. Now regarding capital projects. Deterioration affects everything, and I’m going to talk about here three things, community associations and hotels and rental cars. At your community association, your common areas may be roofing, carpeting, siding, asphalt, elevators, pool, tennis courts, all these common areas, the cost of that none of it is surprising. They all deteriorate on schedule. They all have very reasonably predictable replacement costs. So budget to prepare all the major corporations are doing it. When you go check into a hotel, you have zero expectations. You’re going to get hit with a special assessment for the carpet or elevator modernization or a roof project. Likewise, when you rent a car when you’re in a different city, I do it quite often. As I travel to a different city, I need to get to an appointment. I rent the car. I have zero expectation that Avis or hertz is going to special SSME for new tires, oil change, a tune up, or anything like that, because they build the cost into the daily rate. And that’s what we’re talking about here, building the cost into the daily, weekly, monthly, quarterly or annual income stream for the association so everyone appreciates it, and that’s necessary, because common areas don’t take care of themselves. Owning and caring for real estate is expensive. That’s not on us. That’s the reality of the world that we live in. And a point that we’ll say right now, and we’ll repeat it throughout today’s program, Community Association living has been described as care free, but it is anything but free. All your board members know there’s a cost in all the time you spend, and it takes so much time that you often hire managers to help with their specific skill set. And then all the homeowners here attending today know that it costs you, on a monthly basis or quarterly or annual basis to be a part of the association. You need to pay your fair share of the obligations Community Association. Living is anything but free. So with that setting the table, let’s change gears now, and I’ll turn the microphone over to Brian, so from his background on the management side of the world here, he can talk about the details and the strategies. So Brian, welcome to the program.

Brian Weaver 6:51
Appreciate it. Thank you, Robert. Thank you, Kelly. Just want to go through a few things with you here. Let’s dive into the details of why reserve funding is necessary, okay, the why is actually pretty simple. Here we have four reserve rules. The expenses that you have are inevitable. They’re not going away. The board is responsible. If I do share your responsibility, delays usually get expensive exponentially, and homeowners always get stuck paying the bills.

Robert Nordlund 7:23
Sorry, Brian, I’m fighting the controls here. Give me just a sec. That’s okay.

Brian Weaver 7:27
So right off the bat, we understand, and we’re very much aware of the constraints that an association have has. We want to start by acknowledging that most budgets are tight and most people resist increasing dues. We get it, we understand it, and we understand why that feeling is that being said, an association has ongoing obligations. Every month the association is getting bills, and they have to pay bills. So when we when we look at these bills, it’s easy to understand when you get a management fee bill or an insurance bill or a landscaping bill, those are our invoices that come in every month and they get paid, that’s that’s common. We understand that, but it becomes a little more hard to understand when we start thinking of components like roofs, okay, but you have to this is where it’s critical to change your thinking, or change our thinking as an industry that that even though that roof doesn’t send you a monthly bill, it is deteriorating Every single day, and it would almost be easier to send you a monthly bill, but that’s why we have reserve studies, and we’re going to talk about that in the next slide. So you know, what is the monthly bill for a roof, if you will. That’s where the reserve study comes in. A reserve study tells you the size of the bill that you need to pay every single month for these type of components, there’s no need to guess. This document helps you have a balanced budget when it comes to having your income equal your expenses. It also minimizes surprises, and just remember, a roof failing in 20 years in plain sight should never be a surprise or a cause for a special assessment. So with this in mind, we can begin to understand that everyone who is enjoying an asset should be paying for their fair share of it. When everyone pays their fair share, the future takes care of itself. However, if you’re not funding your reserves properly. There’s two ramifications. One, special assessments. Two, lowered property values. So we talk about special assessments. No one likes a special assessment, especially if it’s a surprise. And again, as we said already, the key is a change in mindset. It. So whether you choose to fund for it or not, the roof will fail and a replacement will be needed someday. You can’t escape that these expenses are predictable and should be planned for, not special assessed for. So we want to keep this simple, if you will, and we look at how special assessments are actually, how funding properly for your reserves actually preserves curb appeal. Okay, if you talk to any realtor, you fact check this online, you’re going to see that curb appeal is very real. Some studies say that it accounts for 7% 10% or 12 and a half percent of the value of your home. So just take this analogy for a second. If you think, if you have a home that’s worth $400,000 and we’re using 10% that’s a $40,000 swing in value, if your property is not being maintained, okay, that’s that’s a critical number. I ask that you just keep that in mind as we go through that go through this presentation, the the value of curb appeal, and curb appeal comes from making sure your property is maintained. So in a study that we did Association reserves, we actually saw 12.6% swing in values as a result of properly funding the reserves. And when you talk about curb appeal, you take a look at the community on the left versus the community on the right. You’re pulling into this community right off the bat. The one on the left is attractive. It’s one that you want to engage in and be a part of the one on the right. You’re pulling into the community, and already you have a bad taste in your mouth. So when you look at this cartoon here, take a good read it. This affordable home has Rustic architecture, so doesn’t matter how good the salesperson is, you can’t spin the obvious. If an association is not being maintained, it’s obvious. And if homeowners are looking at the books and records, and they’re looking at reserve studies, they’re going to begin to see as as homeowners become educated, as as insurance professionals and auditors, you know, that’s this. This information is becoming more and more public and and homeowners want to know what’s going on. So when they see these numbers again, you want them to be eager to move in, not wanting to to run from the opportunity. So going back to that analogy of the $40,000 you know, if you have a home that’s worth 400,000 you think of the value of having your own pop, if you will. And what does it really amount to? And again, I’m not making light of the numbers here, but if you’re spending an extra $50 a month to to to properly fund your reserves. That’s $600 a year. Okay? That is is, for all intensive purposes, a drop in the bucket compared to what the value of your home is, and especially when it comes to the curb appeal. And again, even if it’s $100 a month extra, again, I know, and I get it, it is a lot of money. But if you’re thinking big picture, and you’re thinking, Well, how does this affect my home, and you have that in mind, that is where we want to get you as board members, as managers and as homeowners, just to begin to see that it’ll pay off in the long run. All right, so now that we have an understanding of this, the details here, let’s talk about strategy for dealing with the topic of board meetings and angry owners. And how do you present this to to your community? So we’ve all, I’m sure, in this call, been involved in board meetings like this, where you’ve got one person standing and saying, Who cares? I’m not going to be here in 20 years. Another person’s, you know, yelling over top of them from from the seat, and the board is looking saying, Hey, we’ve got all the the numbers and the data, but numbers and data, it’s, it’s, that’s one part of the equation. Being able to to convince, or lead, I should say, properly, lead your community to the right path, is is a whole other side of this equation. So I’ve seen this myself. You have, you know when you, when you as a board or as a community know that there are major expenses hitting and possible special assessments hitting, you could potentially put your home on the market before that big special assessment for the roof comes. Unfortunately, I’ve seen board members do that, and you know they know about it. They know it’s coming. Coming and they choose to sell before the the information even becomes public, to the to the community. That’s a big mistake, but, but just understand this can be avoided. So reserve expenses are all about ongoing deterioration, and it’s just it’s a simple analogy, just like the sand falling from this hourglass. Reserve projects don’t just unexpectedly fail, okay, they get old and gradually approach the end of their useful life. Again, it’s predictable, and it’s a gradual process, because, as you see here, the cost reserve expenses increase gradually over time. It’s it’s called inflation, Alright, so here’s a tip for managers board members. You you want to get this point across. Okay, every person in your community has a choice, especially you as a board you have a choice how you’re going to handle this? Okay? You’re either going to, you know, how you pay, I should say, for the reserve components. You’re either going to do it a little bit at a time, slow and steady in terms of just monthly transfers to your reserve account, or you’re going to pay for that roof through emergency special assessment short notice, and I will tell you in almost every instance, you’re going to be paying more for a loan or special assessment than you will have had you been funding monthly. So while that’s easier said than done, one thing that you can do as board members or managers is make sure that you are constantly dropping seeds to your community, constantly tell them about, hey, we plan on doing new roofs in 2027

I even If you meet monthly, and that’s one of your topics, and you just continue to make that and put that on the agenda in a year and a half, two years from now, this project is coming and and tell them constantly what it’s going to mean to them, how your finances are looking. Do you think a special assessment is going to be needed, or are you going to greatly increase your contributions? Don’t surprise the membership. That’s where people get angry. Make sure you’re constantly dropping information to them, so no one or should ever be caught off guard. So in addition to dropping seeds well in advance, you want to show photos of what you are seeing behind the scenes. So if you’re sitting down with your manager and you’re reviewing photos of wood rot or the sub base under the asphalt is crumbling, and you’re looking at photos of that make your community aware of what’s going on. Have a plan. Make sure that you they know you’re in charge, that you’re leading them toward a better future, but you want them to see the actual deterioration that’s happening around them. Because, believe it or not, many people could walk right by it. They’ve walked right by it for 15 years, and they just never noticed that the sighting is falling off on the back of the building. So that’s the kind of things you want to make sure that they’re seeing. And pictures are worth 1000 words. So in this example here, you know, again, picture is worth 1000 words. You don’t have to say that the the hot water tank here needs to be replaced, or the tennis court needs to be replaced. It’s or at least majorly repaired. It’s obvious, but people who are not going to the tennis courts again, they see it. If nothing else, this might open up a discussion whether or not you choose to disband the tennis court and do something else with it. Let that be a conversation that happens over time, not in a surprise meeting where you’re telling the entire association that you need to raise $150,000 to redo courts and what have you same thing with the balconies here, in this situation, if you’re not addressing those, those balconies and deterioration now, you get water into the rebar, and you could potentially have structural issues on the picture, on the right hand side, the wood, the rot there that could have been prevented had that wood been painted on a regular cycle, okay, not letting it go to the point of where you see now, where the actual wood has to come off. Same thing with pool furniture. Again, you don’t want to surprise your community by opening up the pool and say, We need a special assessment to replace the pool furniture, and that could have been dealt with at the pool closing, or better yet, like we’re saying, over time, the money’s in the account to replace the furniture when it needs to be replaced. Same thing with the. Wood rot, the wood trim there on the windows on the right hand side, something that you want to be continue to be paying attention to as part of your painting cycle, looking for wood that needs to be replaced, not letting it surprise you. On this picture on the left, one of our project managers actually did this reserve study, and you can understand why they didn’t want to go any further. It was rickety, missing boards. It was only three feet wide to begin with. So things like this, you want to have taken care of from a liability standpoint, as well, as you see on the right hand side. If you start to see that you want to you want to fund for it. Now, keep in mind, this is another strategy, a little tidbit of information. If you’re receiving a reserve study, it says you need to replace all sidewalks in in five years. Just, just challenge your reserve study provider. Have a conversation with them. Do I need to replace all sidewalks? Or can we break this down and do 20% every X amount of years, which is more practical, and it’s, it’s, it’s the way it should be done in many instances. Again, the whole point of this is you want to present photos to your community of what’s happening in your community and why you’re making the decisions you have to make to lead them effectively. And a picture is one of the easiest ways to do that. Can’t tell you the number of times that I would stand in front of crowds that were angry about special assessments, because it wasn’t done right, but we still led the meeting by showing them visuals of what was going on and that that alone diffused some of the anger. And the single biggest problem in communication is the illusion that it has taken place. And where I see this often is board members. You’re meeting with your manager behind closed doors. It could be month after month after month and and you know very much what’s going on, and you just begin to think that others know what’s going on. You might have said it once or twice to the membership, but if you’ve talked about it 10 times, just understand that the memberships in the dark, and they don’t need to know every single detail at all times. That’s not what we’re saying here, but you want them to be informed. You want them to know what’s happening, okay? And one of the other things I’d like to just just share is choose your words carefully. And here’s some examples that we see reserves are not saving for the future. Okay? We hear that a lot. That’s not the purpose of a reserve account. It’s not saving for the future. It’s not setting aside for the future, but rather paying for today’s deterioration. Your reserve transfer every month, you have to think of it like a landscaping bill. It’s paying for the deterioration that the owners are using up. It’s a switch in mindset, and they’re the reserve account is not a cushion account. It’s not a slush fund. When we talk about monthly contributions, don’t use the word contribution. This is not a discretionary if we have money left over at the end of the month, we’re going to go ahead and put it into the reserve account. That’s not, that’s not what you should be doing. It’s, a reserve transfer. It’s a monthly transfer to the reserve account, no different than your landscaping bill. And then again, if you want more information on this, or you’d like to dive deeper into what we’re talking about here, we have that information online. A lot of resources available to you online. I know Robert’s going to share with you some of that, but if you do stay to the end of this presentation, we’ll provide the link for that. Well. Thank

Robert Nordlund 23:48
you very much, Brian, I was sitting here and I realized my arms were crossed and I was tightening up because of just thinking about all those meetings that you’ve been to where you see the numbers, you see the problem, and you’re just aching for the homeowners to kind of buy into it. So is that, am I overstating, or is that so much of what you saw, a

Brian Weaver 24:11
lot, unfortunately, unfortunately, we’re beginning to see trends change, but unfortunately, you know, reserve study was completed. It was done just to check off a box, and then it was shelved, and it’s not brought back out until an association needs a loan. And what happens is owners are in the dark. Associations not funding properly, and then you have, you have special assessments or emergencies. Owners are angry. I mean, I had seen everything from 70 $75,000 assessments and police in the in the room to stoke bites, and it’s just not healthy. It should not be that way. Yeah,

Robert Nordlund 24:51
that’s no fun. I don’t want to think about having enforcement in the room just to keep law and order and the people from losing their temperature. Um. Are elevating tightness, elevating emotions, all that kind of stuff. One thing I also liked was, when you were talking about reserve, deterioration is like the sand in the hourglass. It’s not discrete. The roof failed, and now we owe $200,000 to the roofer. That roof failed over 20 years in plain sight, it was not a surprise to anybody. So that whole idea of people paying their fair share is just part of the communication message. So thank you for sharing that. Okay, let me change the topic here and go to the conclusion portion of our program here today and wrap this all together. So a lot of what we were speaking about, I started the program talking about community and how the community is divided into common area and private area. What we want to do is bring the board and the homeowners together. It’s Our Community. It’s our association, and prioritizing taking care of it, and when you’re focusing on taking care of it, and that takes your eye off the assessments which may have to go from 275, to 375, or 575. To 625, per month, whatever it is at your association, as Brian mentioned, the big number is the home values. You can make so much money by taking good care of the property and having it pop, having it shine, and having prospective homeowners want to become a member of this association. So we all want the structure to be perfect. Let us know about anything that isn’t right, and we’ll get it done. We’ll get it right. Yes, it’s going to cost a little bit of money, but I chose that word a little bit of money because that’s little compared to what it will do for home values. Okay, action steps, three things for you to do, set a budget that offsets that ongoing cost of deterioration, get homeowner buy in as necessary at your association, collect those funds and then pay those bills to the roofer, to the painter, to the asphalt company, to the elevator company, get those projects done, taken care of, and so you don’t let them wait. You don’t defer them and allow those projects to get bigger and deeper and more expensive, so take good care of the association, set the budget, collect funds and pay for things on time. Because we have this grand, grand experiment of community associations, and we have these multi million dollar nonprofit entities that are run by an untrained volunteer board of directors, assisted by professional management in so many cases, and that’s a little bit of thin ice, because they are untrained volunteers, a rotating door of volunteers that are leading these associations. What could possibly go wrong? Well, when there isn’t a focus on the long term picture, the big cost. Brian hit it on the head where he said, the roof doesn’t send a bill. The asphalt doesn’t send a bill. When you’re missing paying those very real bills, you find that you run yourself out of money. You’re unprepared. So when board members lead with selfish interests of running the association to minimize costs, only paying those bills that come in the mail or via email, they’re going to run the association out of money and end up with deterioration everywhere you look, and no money to pay for it. And that’s what we call when an association hits the death spiral where they’re reaching out to us, saying, Hey, we think we’re in a jam. We have deterioration all around we need to do X, Y, Z, all these projects, and we think we’re going to have to raise our assessments. And yeah, that’s the truth. We don’t want that crisis. You don’t want that crisis. It’s not wise, and it’s a foolish way to manage your real estate investment. So what’s it kind of mean? We’ve explained this in other webinars, that on average, reserve funding typically comprises about a quarter of the average Association’s budget. So we see 15% to 40% that’s the general range, but an easy number for a takeaway today, start at thinking reserve funding needs to be in the 25% range of your total budget. Okay? By doing that, what happens? Well, you budget to pay your bills, and in doing so, you a lot of good things happen. You minimize special assessments. You minimize deferred maintenance, which leads to additional costs. So in doing all this, you minimize a cost to your association. Saving money is always good. You maximize owner enjoyment. You come home saying, I like living here, and you maximize. Property values. Hey, you may only sell once every 10 or 20 years, but when you do sell and realize every penny you put into reserves was worth it. So the choice today is yours. It’s your home, it’s your community. You have a choice. You can let things deteriorate, or you can guide your association towards an improved future where you’re setting aside funds a little bit at a time, on an ongoing basis, and today, here in this program, we hope we’ve empowered you or equipped you to have the right words and strategies to engage your homeowners, get them on the same page with you as board members and managers help them see the value and importance of funding reserves, taking good care of the property, and our encouragement is free to find that common ground, uniting everyone together and understanding that it’s their association. Deterioration is real. It’s an enemy we all need to fight. It’s expensive, and it’s going to take some money to repair or replace it on an ongoing basis, so that cash is there when you need it, and that cash will maximize the look and appearance and enjoyment of the common areas, and it’ll protect home values Community Association. Living has been sold as a carefree lifestyle, but we need to emphasize that it is definitely not free. It comes at a cost. Those of you who are board members know the hours you’re putting in, and they know the help that you get from your manager and the time they’re spending. So to learn the predictable cost of ongoing deterioration, as Brian said, simply look in your reserve study for that annual funding recommendation, it will recommend the amount of cash that you need to offset deterioration and pay that bill, setting you up for an improved future. So Brian and I want to personally thank you for taking your time to join us today for this webinar, point you to a few additional resources. If you go to our website, reservestudy.com you’ll find written and video resources under our resources tab, appropriately named and again on our website. If you’d like us to help you at your association with a professional reserve study, by all means, click the Request to proposal link right at the top right of our homepage, and if you search for reserve study videos on YouTube, you’ll find plenty of ours. And if what we show is helpful to you, consider giving them a like and subscribing to our channel, or to have something on your desk or bookcase that summarizes major reserve study concepts like we’ve addressed today, consider ordering our book understanding reserves. I’ll put a link in the outline to where you can download chapter one for free, and if you like what you see, get a copy by ordering from Amazon. It’s inexpensive. It’s a paperback. I have a copy right here at my desk that I’ll sign and hand out or send to someone who asks an interesting question during our Q and A time, and remember, perhaps one of the best resources we have is our online reserve calculator called you plan it if you want to work with the pros and cons and different variations to your reserve expenses and your reserve funding plan. Perhaps you’re getting ready for a budget meeting. Perhaps you’re getting ready for a meeting with homeowners you plan. It allows you to test different funding plans and expense scenarios. It allows you to see, if you like, what happens, and make informed adjustments to your budget plan and prepare for questions from their homeowners. And again, it’s free with every professional reserve study from Association reserves. And here’s a great resource for our board member audience, a weekly 30 minute podcast just for you. It’s called HOA Insights, common sense for common areas. Share it with your homeowners so they begin to think and engage like board members. It’s our association. How do we help taking good care of this place. How do we understand what’s going on with the board? How do we contribute the board members all across the country are carrying this entire community, association industry on their shoulders. So the podcast is full of guest experts current issues, and once a month we feature a board hero themselves. So join us at HOAinsights.org, or by subscribing from your favorite podcast platform.