The Reserve Study

A board's fiduciary responsibility is to protect, maintain, and enhance the value of our shared property. To help us do that, we commissioned a reserve study to address the incremental but ongoing deterioration of our facilities.

A Reserve Study is a budget planning tool that identifies

• the components a community association is responsible for maintaining or replacing,
• the status of the reserve fund,
• and a stable and equitable funding plan to offset the anticipated future major common area expenditures.^[1]

“Deterioration is expensive, but fortunately very predictable. Reserve funding ‘pays the bill’ of ongoing deterioration. It is as real as any other bill the association pays. It is not a savings account ‘for a rainy day.’ The funds are set aside for specific purposes.”^[2] 

Reserve Components are determined based on national standards which require that an element’s useful life can be predicted and the probable cost for replacement can be reasonably estimated. “Components usually include items like roofs, elevators, boilers, air conditioning, pools, paint, carpet, parking lots, landscaping, plumbing, lighting, etc.”^[3]

The reserve study’s funding plan suggests a schedule for repair or replacement of the identified components. This schedule helps us make sure funds are available when needed to keep our property in the best possible condition. We use a cash flow method which allows flexibility in when we use the funds for upkeep of particular components.

Transfers to our reserve fund are a regular line item on our annual operating budget. We transfer a percentage of our operating budget to the reserve fund each month.

Results for owners: “The association is properly funded. The need for special assessments is virtually eliminated. Everyone who lives in the association understands the true cost to live there. When the time comes for unit owners to sell, they will get TOP dollar for their unit. They enjoyed a great looking property the entire time they lived there, and they are rewarded for it with getting that money back in the form of a highly appreciated value of their unit on sale.”^[4]

National Best Practice is to update a Reserve Study every third year on the basis of a diligent visual site inspection.^[5]