The importance of a reserve study and why you need one

A common misconception is that if you have a reserve study done, you must set aside reserves for each component listed. However, it is your right to fund reserves based on your financial goals. As long as the analysis has been completed in compliance with state statute, your fiduciary responsibility has been met.

When choosing a reserve study provider, consider the following:

  • How long has the company been in business?
  • Has the provider completed studies in your immediate marketplace and will they provide references?
  • Has the provider offered to complete annual reserve study updates, so that you will continue to be properly funded in the future?
  • Will a designated reserve specialist (RS) complete your reserve study?

The RS designation is conferred by the Community Associations Institute (CAI) to reserve study professionals who have proven their expertise through formal education and have substantial field experience. All reserve studies provided by a designated reserve specialist are completed under the guidelines of the National Reserve Study Standards of CAI and must conform to CAI’s Professional Reserve Specialist Code of Ethics.


Stephen Brubaker, RS, is a regional appraiser with GAB Robins. Mr. Brubaker is also a certified construction inspector with the Association of Construction Inspectors. BY STEPHEN BRUBAKER, RS

 

Once again it is budget-planning time for most associations. An old saying states that if you don’t have a goal you will never know when you have reached it. The same can be true for preparing a budget. A professionally prepared, properly completed reserve study can be an invaluable tool to assist in setting your annual budget goals and will show you how to meet them. Your association can then make a much more informed decision regarding full funding requirements, thereby avoiding the likelihood of a special assessment.

A reserve study helps to identify major repairs or replacements a property can expect and is designed to establish a stable and equitable plan to pay for these anticipated expenditures. For example, Florida statute mandates that condominiums, cooperatives, and timeshare condominiums perform a reserve study on an annual basis. Property owner’s associations, homeowner’s associations and country clubs also rely on reserve studies for funding of predictable replacement items.

Each year board members, association members and property managers ask themselves if their reserves are funded properly, but some perform their own reserve

studies. In doing so, they run the risk of improperly estimating the useful lives and replacement costs of their reserve components or completely omit important elements. As a board member or property manager, why assume the risk of an erroneous or incomplete reserve study when a qualified specialist can work with you to assure that your reserves are properly identified and funded?

Every new reserve study should include a thorough review of your reserve budget. Along with property representatives, the reserve specialist should identify appropriate reserve components, as outlined in applicable state statute and in your reserve budget. All components should be physically inspected, with careful attention paid to the date of installation or replacement. The size of the reserve component must be accurately measured, whether by review of construction plans or on-site measurement. For each of the components identified, the reserve specialist must accurately establish a market-supported useful life, remaining useful life and current and future replacement costs. In addition to market data, your actual operating histories should be carefully considered. After gathering all this information, it is the job of the reserve specialist to develop an analysis that will estimate the annual funds needed to meet the required replacement reserve.