What is a Reserve Study?
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&R's 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.
The purpose of the Reserve Study is to give those overseeing the maintenance of the property a better idea of what major expenses to expect and an educated estimate of when these expenses will occur. With this knowledge the Homeowner's Association or property manager can create a more effective budget which also helps them to determine an appropriate amount of dues to charge each homeowner monthly to put towards reserves savings, and make accurate disclosures about the status of the Reserve Fund to homeowners.
There are three results from a Reserve Study. 1) A listing of the major assets of the association to be funded through Reserves, their expected Useful Life, Remaining Useful Life, and Current Replacement Cost. 2) An evaluation of the current strength of the Reserve Fund (commonly expressed as "Percent Funded"). 3) A recommended multi-yr Reserve Funding Plan.