What Is a Reserve Study and why do we need one?

 

A well-prepared reserve study can avert special assessments and supports a harmonious community.

There are 4 important reasons to conduct a reserve study.

  • To maintain the property’s value and appearance
    A reserve study helps maintain the property’s value and the property owner’s investment. By identifying and budgeting for future capital improvements, the property’s common elements continue to look attractive and well-kept, adding to the community’s overall quality of life.
  • To fulfill the board of directors’ fiduciary responsibility
    Board members of community associations have a fiduciary responsibility to their members. Directors are legally bound to use sound business judgment in guiding the association and cannot ignore major capital expenditures or eliminate them from the budget.
  • To establish sound financial planning and budget direction
    A comprehensive reserve study lays out a schedule of major repairs or replacements to common property elements and applies cost estimates to them. To ensure property owners have adequate reserve funding to cover anticipated costs, a reserve funding plan typically spans 30 years. In short, it’s your blueprint for the future.
  • To comply with state law
    Many states now require community associations to disclose reserves, accumulate reserves or have professional reserve studies conducted. It’s anticipated more states will adopt similar legislation.