Reserve Study Basics for New Board Members

Board Members should know 5 things about reserve studies:

  1. What Percent Funded is?
  2. How much is being contributed yearly to reserves?
  3. What major projects are coming up in the next 3 years…
  4. Has the reserve study been updated in the last year?

 

More in depth articles can be found in the Reserve Studies area of this site which is a great resource for industry articles written by professional reserve analysts.

For more detailed trainning on reserve studies follow our tutorial

Begin Reserve Study Tutorial

What a Reserve Study Is and What a Reserve Study is Not

There is often confusion with Board Members and other Vendors as to what the reserve study is and what it is not. Below is a breakdown of what you should expect of a reserve study when ordering for any Association you are working with:

A Reserve Study Is:

  • A budgeting tool utilized by an Association for the long term allocation rates to the reserve account.

  • A timeline for expected common area expenses and it provides related expenses for these common area expenses.

  • An indicator of where the Associations funding level is in relation to the reserve account balance.

A Reserve Study Is Not:

  • It is not the annual recommended budget or a document to rely on for annual maintenance expenses – a reserve study may give guidance for the ongoing maintenance of some common areas in order to maximize or extend the useful life of the component (e.g. remove oil stains from asphalt, carpet cleaning or pressure washing recommendations) but there is not related costs for these recommendations.

  • The reserve study is not a comprehensive building inspection, engineering report, an instrument to perform exhaustive testing and does not provide the reasons for common area component failures.

  • The reserve study does not provide recommendations for upgrades or replacement of components unless they are required to meet code, energy  or safety requirements.  An example of this would be replacing chain link fencing with a  costly decorative wrought iron fencing as this would typically be considered a capital improvement and not a reserve expense.

  • Lastly a reserve study is not set in stone but is an evergreen document that will change with yearly updates. The component list, their related costs and their related useful life expectancy will change with time as a history of actual expenses is developed and replacement costs are established.