Reserves are financial AND psychological. In this webinar, we explore why HOA boards and homeowners resist funding Reserves, even when the need is clear. Learn how concepts like anchoring, path dependence, loss aversion, and status quo bias impact decision making. Discover how better communication, professional reserve studies, and long-term thinking can help your association stay financially healthy and avoid costly surprises.
Transcript
0:00 — David Graf:
Thank you, Paige, Brian—everybody welcome. Thanks for being here. This is an interesting class. I’ve been to about 4,000 HOA meetings over the last 25 years and wrote a book about it. One recurring issue I see is the difficulty in messaging and getting acceptance around the need to increase reserves. So today we’ll talk about lessons Brian and I have learned, and how this class originated. We were teaching it last summer—there’s a funny story tied to one of our examples, so I’ll save that for later. Brian, did you want to say anything at the beginning?
0:45 — Brian Farley, RS:
No, I think you’ve got it from here.
0:52 — David Graf:
Awesome, thanks. Quick disclaimer: educational use only—not legal advice. We’re not psychiatrists, psychologists, or sociologists—just students of HOA meetings. Before acting on anything, talk to your legal counsel, your manager, and your reserve study professional.
Depending on where you are in the country, you’re probably seeing a turbulent period right now. It often follows building cycles. Here in Colorado we’ve seen boom-and-bust cycles over the last 40–50 years. If your community is facing underfunding or deferred maintenance, remember: it’s a phase in a community’s lifecycle—it’s not forever.
Communities often start new and assessments are kept low (sometimes to help sales). Then comes a long period of peace—and with peace comes apathy. Meanwhile, property deteriorates with time and weather. Eventually, those gradual changes become impossible to ignore: roofs, siding, asphalt, elevators—something has to be fixed. That triggers a turbulent period where boards scramble to educate owners about why more money is needed, and why prior boards may not have raised assessments for years.
Right now, many components are 30, 40, 50 years old—and they weren’t built to last forever. I once spoke with someone from Egypt who insisted buildings should last 800 years, like the pyramids. That’s not my experience with American buildings from the last 40–50 years.
There are two principles that help when trying to change the status quo—especially when assessments haven’t been increased to keep pace with rising costs. The first is anchoring, a concept used in sales: you set a reference number that shapes how people perceive what comes next. In associations we often have reverse anchoring: “We’ve paid $150/month for 20 years—now it needs to be $450.” That leap is hard because people’s sense of what assessments “should be” is anchored to a number that isn’t realistic anymore.
Re-anchoring can help. For example: if you don’t raise monthly assessments, the tradeoff may be special assessments. That term is understandably scary, and we have to be careful how we message it so we don’t create panic—though social media may do that anyway. Still, it can re-anchor reality. I rely on people like Brian to come in as the outside professional and say: “These numbers might have worked decades ago, but we need new numbers based on good data.”
The second principle is path dependence—a community’s cultural inertia: “We’ve always done it this way. We’ve always kept assessments low.” That’s not just a math problem; it’s an identity problem. It often takes a multi-year effort to shift the mindset from shoestring, last-minute, low-bidder fixes toward a revitalization mindset: maintaining the community, preventing leaks, protecting value, and treating the association like the important entity it is.
After the big picture, we’ll talk about specific issues: not having a reserve study, relying on a homemade study, believing studies are hard to interpret or too expensive, boards trying band-aids, losing to inflation, the “gift to future owners” misconception, and how underfunding impacts resale.
Why do we need a reserve study? People say: “We don’t need someone to tell us we don’t have enough money—plus it’s expensive and it’s all guesses.”
9:04 — Brian Farley, RS:
Right. We’ve talked about re-anchoring and path dependence—gradually moving toward the right destination. Pushback at meetings can be intimidating. If you’re a board member or manager, you want things to run smoothly, but instead you have angry people yelling. It’s no fun. We understand it.
So how do we talk about this emotional topic—because finances always get emotional—in a way that creates clarity? One good way is to describe the reserve study as a map and a guideline. If I’m taking my kids to New York City, I need to know my starting point and my destination. If traffic happens, I don’t throw out the GPS—I recalibrate and keep the destination the same. That’s how to think about a reserve study: it tells us where we are financially today and where we’re trying to go.
What’s the alternative—put our heads in the sand and drive without knowing where we’re going? We need to see the true cost of ownership. “We think we have enough money”—relative to what? If liabilities are over a million dollars but reserves are only half a million, is that enough? We have to look at the numbers before we can conclude anything.
It also helps in a meeting to put the reserve study on the screen. You may feel like you have a target on your back, but instead you can step aside and say: “This is what’s informing us.” It’s not a command—it’s reality. It shows what it costs to replace the roof, siding, asphalt, elevator, and more. Owners can price-check vendors if they want, but now decisions are based on real information rather than guesses. That clarity can reduce panic and help people calm down.
David, from your perspective, does having a reserve study reduce lawsuits compared to not having one?
12:53 — David Graf:
I haven’t seen a lot of lawsuits specifically about reserve studies. I’ve seen plenty of grumbling: “How did we get here? Who’s to blame?” But those problems can be 30 years in the making. People have access to the information: they can attend meetings and review financial records. It’s shared responsibility.
It’s important not just for homeowners to calm down, but for boards to calm down too—and to rely on experts. A common pattern is a community goes years without a study, then gets one and experiences “whiplash” when they see the numbers. But it’s just data. Homeowners decide funding directly or indirectly by who they elect. This isn’t just the board’s problem; it’s the community’s puzzle to solve with good information.
Sometimes boards try to overcorrect after that whiplash, and homeowners resist even more. The point is: “Here is the information—now we chart a course forward.” Without a reserve study, it’s all guessing. And one kind of guessing is the homemade reserve study. I’m not trying to insult anyone, but in general it’s a credibility killer. People may not have the expertise to estimate costs or understand how building systems work together—especially things like water intrusion. There can also be liability concerns, and even beyond that, owners simply don’t trust it the way they trust an independent professional report.