Why Does Our Community Need a Reserve Fund?
Equipment and major components (like pool equipment) must be replaced from time to time, regardless of whether an association plans for the expense. It is preferred to plan and set the funds aside now. Reserve funds aren’t an extra expense—they just spread out expenses more evenly. There are other important reasons to put association monies into reserves every month:
Reserve funds meet legal, fiduciary, and professional requirements. A replacement fund may be required by and association’s governing documents.
Reserve funds provide for major repairs and replacements that we all know will be necessary at some point in time. Although a roof may be replaced when it is 25 years old, every owner who lives under it should share its replacement costs.
Reserve funds minimize the need for special assessments or borrowing. For most association members, this is the most important reason to have a reserve fund.
Reserve funds enhance resale values. Lenders and real estate agents are aware of the ramifications for new buyers if the reserves are inadequate. Many states require associations to disclose the amounts in their reserve funds to prospective purchasers.
The American Institute of Certified Public Accountants (AICPA) requires the community association to disclose its reserve funds in its financial statements.