FAQs
What is a Reserve Study?
Why do I need one?
What are the costs?
What is a component?
When should i have a reserve study conducted?
Where can i look for more information?
Why do I need one?
What are the costs?
What is a component?
When should i have a reserve study conducted?
Where can i look for more information?
A Reserve Study is a budget planning tool which identifies the current status of the Reserve fund and a stable and equitable Funding Plan to offset the anticipated future major common area expenditures. The Reserve Study consists of two parts: the Physical Analysis and the Financial Analysis. This document is often prepared by an outside independent consultant for the benefit of administrators (Board of Directors) of a property with multiple owners, such as a condominium association or Homeowners' association (HOA), containing an assessment of the state of the commonly owned property components as determined by the particular association's CC&Rs and bylaws. Reserve Studies however are not limited only to condominiums and can be created for other properties such as resort (shared vacation ownership) properties, apartment buildings, and office parks.
Reserve Studies are in essence planning tools designed to help the Board anticipate, and prepare for, the property's major repair and replacement projects.
Why do I need one?
In addition to being helpful planning tools, Reserve Studies for Community Associations are legally mandated in 25 states (such as California, Florida, Hawaii, Nevada, Virginia, Washington, etc.), either for budget preparation or homeowner (and prospective homeowner) disclosure purposes. In California, the relevant law is California Civil Code 1365.[2] In California, the law requires an annual Reserve Study Update, with that update prepared on the basis of a "diligent visual site inspection" at least every third year. With the passing of SB 278 in 2010, the state of Utah now also requires condominium and community associations to conduct and review reserve studies on a periodic basis.[3] Reserve contributions are often one of an association's largest budget line items (often 15-40% of the total budget), and the Reserve Fund is typically the association's largest financial asset. This means annual review of Reserve contributions and annual disclosure of the status of the Reserve Fund are prudent.
What are the costs?
Reserve study costs depend on the number of units, type of unit, and the facilities that are provided to association members. Associations with only a few units in a single building and no facilities (such as pools, a clubhouse, landscaping, etc.) will have a lower costs than Master Planned communities with many association maintained facilities. There are also three types of Reserve Study. The first is a full on-site study where the reserve specialist will visit the property, develop a list of components, and create a financial analysis of the associations reserve fund. The second is a on-site visit where the list of compnents has already been developed. The second level reserve study helps determine the accuracy of the life expectancy of the components as well as update the list for any new components. The third level is an annual update. This is done annually every year in which a full onsite study has not been completed. It consists of updating the remaining life of the components as well as adjusting for inflation and completed projects
What is a component?
The Reserve Component List is designed to help an Association prepare for large expenses. There is no master list of reserve components but typical components include painting, road maintenance, roofing, recreational assets, landscaping, etc. Essentially anything that the association maintains that has a limited useful life, predictable remaining useful life and replacement cost over a certain minimum amount. Some things that are included are electrical wiring, telephone wiring and pumbing since their useful life and remaining useful life are difficult to calculate. Some costs, such as tree trimming, can be either a reserve component, or a operations expense depending on how they are handled. i.e. if all the tree trimming is done once every 3 years it would be a reserve cost. If it is done on an ongoing basis, it would be paid for by operations.
When should i have a reserve study conducted?
In California, law states that associations must distribute their budgets to the owners between 45 and 60 days prior to the end of the fiscal year. Since the Reserve Study shows the current state of the association's components and provides a funding plan for the following years budget, it is recommended that it be completed a few months before the final budget is prepared. Be sure to schedule the reserve study early to avoid "rush" prices and sufficient time to use the resulting information to form your next years budget. A good rule of thumb would be to start the process approximately six months prior to your fiscal year end.
Where can i look for more information?
A Google search will pull up lots of useful information to help you figure out your reserve study needs. If you have any questions, comments or concerns feel free to visit our contacts page and send an email or give us a call. Our knowledgeable staff is more than happy to help out!
Why do I need one?
In addition to being helpful planning tools, Reserve Studies for Community Associations are legally mandated in 25 states (such as California, Florida, Hawaii, Nevada, Virginia, Washington, etc.), either for budget preparation or homeowner (and prospective homeowner) disclosure purposes. In California, the relevant law is California Civil Code 1365.[2] In California, the law requires an annual Reserve Study Update, with that update prepared on the basis of a "diligent visual site inspection" at least every third year. With the passing of SB 278 in 2010, the state of Utah now also requires condominium and community associations to conduct and review reserve studies on a periodic basis.[3] Reserve contributions are often one of an association's largest budget line items (often 15-40% of the total budget), and the Reserve Fund is typically the association's largest financial asset. This means annual review of Reserve contributions and annual disclosure of the status of the Reserve Fund are prudent.
What are the costs?
Reserve study costs depend on the number of units, type of unit, and the facilities that are provided to association members. Associations with only a few units in a single building and no facilities (such as pools, a clubhouse, landscaping, etc.) will have a lower costs than Master Planned communities with many association maintained facilities. There are also three types of Reserve Study. The first is a full on-site study where the reserve specialist will visit the property, develop a list of components, and create a financial analysis of the associations reserve fund. The second is a on-site visit where the list of compnents has already been developed. The second level reserve study helps determine the accuracy of the life expectancy of the components as well as update the list for any new components. The third level is an annual update. This is done annually every year in which a full onsite study has not been completed. It consists of updating the remaining life of the components as well as adjusting for inflation and completed projects
What is a component?
The Reserve Component List is designed to help an Association prepare for large expenses. There is no master list of reserve components but typical components include painting, road maintenance, roofing, recreational assets, landscaping, etc. Essentially anything that the association maintains that has a limited useful life, predictable remaining useful life and replacement cost over a certain minimum amount. Some things that are included are electrical wiring, telephone wiring and pumbing since their useful life and remaining useful life are difficult to calculate. Some costs, such as tree trimming, can be either a reserve component, or a operations expense depending on how they are handled. i.e. if all the tree trimming is done once every 3 years it would be a reserve cost. If it is done on an ongoing basis, it would be paid for by operations.
When should i have a reserve study conducted?
In California, law states that associations must distribute their budgets to the owners between 45 and 60 days prior to the end of the fiscal year. Since the Reserve Study shows the current state of the association's components and provides a funding plan for the following years budget, it is recommended that it be completed a few months before the final budget is prepared. Be sure to schedule the reserve study early to avoid "rush" prices and sufficient time to use the resulting information to form your next years budget. A good rule of thumb would be to start the process approximately six months prior to your fiscal year end.
Where can i look for more information?
A Google search will pull up lots of useful information to help you figure out your reserve study needs. If you have any questions, comments or concerns feel free to visit our contacts page and send an email or give us a call. Our knowledgeable staff is more than happy to help out!
