Hiring a Reserve Study Company is a wise business decision for every Home Owner Association. This post will explain what a Reserve Study is, why you need one, and how to use a Reserve Study once completed. Depending on the size of your HOA as well as the type of equipment (elevator, common boilers, type of roof, etc) along with the size of common areas will determine the costs of the Reserve Study. For a typical building with one elevator and common boiler, the Reserve Study would costs around $2500.
The Reserve Study includes both the financial and physical analysis of your building. The current financials will be looked at and will provide a starting point for the Reserve Study. Currently expenses will be shared and projections will be made according to the current financial situation. The physical component involves having a building engineer inspect all common areas and components of the building and project a useful life for each particular component. For example the roof may need to be replaced in 20 years, the hallway carpeting in 7 years, and the elevator in 15 years. This presents a financial forecasting need for the HOA and the Co-op or Condo Board is responsible for being ready for these Capital Improvements.
A typical Reserve Study would include the following sections:
- Identification of Property – Segregates all property into several areas of responsibility for repair or replacement
- Reserve Expenditures – Identifies reserve components and related quantities, useful lives, remaining useful lives and future reserve expenditures during the next 30 years
- Reserve Funding Plan – Presents the recommended
Reserve Contributions and year-end Reserve Balances for the next 30 years
- Five-Year Outlook – Identifies reserve components and anticipated reserve expenditures during the first five years
- Reserve Component Detail – Describes the reserve components, includes photographic documentation of the condition of various property elements, describes our recommendations for repairs or replacement, and includes detailed solutions and procedures for replacements for the benefit of current and future board members
- Methodology – Lists the national standards, methods and procedures used to develop the Reserve Study
- Definitions – Contains definitions of terms used in the Reserve Study, consistent with national standards
- Professional Service Conditions – Describes Assumptions and
- Credentials and Resources
The process of identification helps assure that future boards and the management team understand whether reserves, the operating budget or Homeowners fund certain replacements and assists in preparation of the annual budget. We derive these segregated classes of property from our review of the information provided by the Association and through conversations with Management and the Board. These classes of property include:
- Reserve Components
- Long-Lived Property Elements
- Operating Budget Funded Repairs and Replacements
- Property Maintained by Homeowners
- Property Maintained by Others
It’s important to work with a Property Management company that not only understands the importance of obtaining a Reserve Study, but one that is also experienced in keeping budgets on track to meet the future goals of the Homeowner Association. We invite you to Request a Management Proposal today for a brighter tomorrow.