Association reserves: Everything you need to know

What are association reserves?

Association reserves are funds that community associations in Missouri set aside to cover major repairs and replacements of shared property. These are not for everyday expenses like landscaping contracts or utility bills, which come from the operating budget. Instead, association reserves are specifically earmarked for larger costs expected over the next 30 years.

This article is not intended to and does not constitute legal advice or create an attorney-client relationship. Board members should consult their association’s attorney to discuss the legal implications of their decisions or actions prior to proceeding.
 

What kinds of projects are association reserves used for?

Association reserves are used to pay for big-ticket items that will eventually wear out, break down, or need replacement. In Missouri, this often includes roofs, siding, private roads, elevators, heating and cooling systems, and community amenities like pools or tennis courts. The goal of using reserves is to keep the community’s infrastructure in good condition without putting sudden financial pressure on homeowners. When reserves are properly funded, board members can move forward with major projects without calling for unexpected special assessments.
 

What is a special assessment?

A special assessment is a one-time charge that homeowners pay when an association does not have enough in reserves to pay for a major repair. Instead of being part of the predictable monthly fees, a special assessment is an extra amount billed directly to owners, often on a per-unit basis determined by unit factors or governing documents. While sometimes unavoidable, relying heavily on special assessments can create financial strain for homeowners and even lead to delinquency issues. Association reserves minimize the need for these one-time charges by spreading costs out over time.
 

How are association reserve contributions calculated?

The amount an association contributes to reserves is usually based on a professional reserve study. A reserve study reviews all the components the association is responsible for, estimates their remaining useful life, and projects replacement costs. For example, if a clubhouse roof is expected to cost $80,000 to replace in 10 years, the reserve study will recommend saving roughly $8,000 per year.

You may hear that associations should allocate between 15 and 40 percent of their assessments toward their reserve fund, but Jacque Martin, director at Reserve Advisors, a reserve study company that has worked with many FirstService Residential communities, cautions against using fixed numbers as guidelines.

"You can’t simply decide to allocate a percentage of your fees toward reserves. Your board needs to base the amount on an up-to-date reserve study."

Jacque Martin, director at Reserve Advisors

Your governing documents might require your association to maintain a reserve fund. For condominiums, the Missouri Uniform Condominium Act only speaks to the requirement that resale certificates accurately disclose the projected budget including reserve contributions and current reserve balance.
 

What to expect from your reserve study

A full reserve study typically includes:

• An onsite inspection to document all common area components the association maintains
   
• Estimated life spans for each component
   
• Replacement cost projections, adjusted for inflation
   
• Recommended funding models

Updates to the reserve study are recommended every 3–5 years or whenever major projects are completed. In Missouri, reserve studies are not legally mandated, but they are widely considered best practice. It’s important to have your reserve study conducted by a qualified third-party specialist with a background in multiple engineering disciplines and proper credentials from a recognized accrediting organization. In the United States, this means being accredited by the Community Associations Institute (CAI) or the Association of Professional Reserve Analysts (APRA). The provider should also be familiar with components in your specific region since useful life can vary due to weather and other regional conditions.
 

What are the risks of underfunding your HOA reserves?

Underfunded HOA reserves can impact your community’s property values, the safety of residents, and the integrity and appearance of your structures and grounds. Despite these risks, research conducted by Association Reserves found that more than 70 percent of the associations they reviewed were less than 70 percent funded! As a result, these communities do not have the money to pay for all the major expenditures they are expected to face. Why is this the case?

According to CAI, “Uninformed homeowners perceive reserves as increased financial burdens rather than financial protections.” Additionally, many homeowners and associations still have not financially caught up from years of slow economic conditions. As a result, association boards continue to seek ways to minimize assessments/dues, both for existing homeowners and for buyers looking to purchase within their community.

Unfortunately, this only delays — and most likely increases — the financial burden on homeowners. The only options for completing projects when an association is underfunded are to significantly increase assessments immediately, impose a special assessment, or take out a loan. What frequently happens, though, is that the work simply doesn’t get done.

"Communities that are underfunded often end up deferring needed repairs."

Jacque Martin, director at Reserve Advisors

About FirstService Residential

Association reserves are a vital part of effective financial management for Missouri communities, and boards don’t have to handle them alone. At FirstService Residential, we work with associations of all sizes to plan, track, and manage reserves in a way that supports long-term stability. Our team partners with boards to commission reserve studies, build funding models, and integrate reserve contributions into annual budgets. With our expertise, boards gain both financial clarity and operational support.

If your community is ready to take a closer look at its association reserves, contact FirstService Residential today to learn how we can help your board protect property values and prepare for the future.