Frequently Asked Questions and Answers

What is a reserve study?

A reserve study is a budget planning tool that identifies the current status of the reserve fund and a stable and equitable funding plan to offset the anticipated future major common-area expenditures. A Reserve Study consists of two parts, a physical analysis and a financial analysis. (Source: Community Association Institute)

There are many reasons as to why you should have a reserve study. In many cases it's the law but some of the primary reasons are:

(a) To avoid special assessments - Special assessments - are generally the by-products that come from bad planning or no planning at all. The reserve study helps associations with a strategy that plans and budgets accordingly for future major common-area expenditures.

(b) Litigation - Another by product of special assessments can be association members litigating against the association and it's Board. This costly battle that wages has no winners and the members must use valuable reserve funds, otherwise used to benefit the association and its members, for attorney fees.

(c) Increased property values and protecting your investment - Your property is an investment and the appearance of your property maintenance reflects the condition of this investment. The reserve study is the tool that helps allow this investment to grow in value through the proper replacement and maintenance of these components.

Reserve studies are always subject to change depending on the condition of the common area components/assets, which are affected by various factors like age, location, weather, and the condition of the association's financials. These necessary updates provide statutory compliance and allow for adjustments due to actual year-end reserve balance and the unpredictable nature of the lives of many of the reserve components under consideration.  Updating adjusts for projections of the remaining useful lives of components based on their actual conditions, and it adjusts for altered fund balances that may have resulted from spending more money than anticipated, or if common elements are replaced earlier than originally scheduled.

Is it ok if we don't contribute monies to the reserve fund?

It would be a breach of fiduciary responsibility for a board not to budget for ongoing maintenance, repairs and upkeep of the association's common area components. However, if the board has disclosed the fact that it will not budget, reserve, or set aside funds and the owners have agreed to this approach it may be acceptable but be advised this could leave to special assessments in the future.  

Based upon where your Association resides  in California a reserve study should be conducted at least every 3 years if your association resides in Nevada it is mandatory that your association have a reserve study conducted every 5 years. please consult your states compliance requirements.  

I live in California, where can I find some reserve study guidelines for Homeowner Association Budgets?

You can find information regarding Reserve Study Guidelines produced by the California Department of Real Estate. CA Reserve Study Guidelines  

How far into the future should my reserve study go?  

Most reserve studies look 30 years ahead. 

A homeowners association is non-profit corporations that exist to help preserve property values through architectural controls, design guidelines and deed restrictions.  Additionally, associations provide for the maintenance of common areas and community facilities.

The declaration, bylaws, operating rules articles of incorporation or any other document which govern the normal operation procedures of an association.