What is a Reserve Study?
A Reserve Study is a budget planning tool which identifies the current status of the Reserve fund and a stable and equitable Funding Plan to offset the anticipated future major common area expenditures. The Reserve Study consists of two parts: the Physical Analysis and the Financial Analysis. This document is often prepared by an outside independent consultant for the benefit of administrators (Board of Directors) of a property with multiple owners, such as a condominium association or Homeowners’ association (HOA), containing an assessment of the state of the commonly owned property assets as determined by the particular association’s CC&Rs and bylaws. Reserve Studies however are not limited only to condominiums and can be created for other properties such as resort (shared vacation ownership) properties, apartment buildings, and office parks. Reserve Studies are in essence planning tools designed to help the Board anticipate, and prepare for, the property’s major repair and replacement projects.
What is an Operating Budget?
An operating budget is the annual budget created each year in order to know how much money it will take to run the Association. There are two parts to an Annual Budget:
- Monthly Expenses: utilities, landscapers, pool services, gate maintenance, ect.
- Reserve Expenses: new streets, roofs, block walls, community painting, ect.
The operating expenses are determined from previous invoices for existing utilities, monthly service contracts with landscapers or pool services, and the communities insurance ect.
What assets does a Reserve Study cover?
The communities “Assets” or “Common Areas” refers to the items encompassing the entire community’s investment. The items mean any asset including, without limitation, any amenity, improvement, furnishing, fixture, finish, system or equipment that may, within 30 years after its original installation, require repair, replacement or restoration in excess of routine annual maintenance which is included in the annual operating budget of the association. (Added to NRS by 2005, 2581)
What is a Reserve Asset List?
A Reserve Asset List is a list of common assets which are identified in a reserve study that may require repair, restoration and/or replacement limited to more than once per year but not more than 30 years since its last repair, restoration or replacement.
What are the different Levels of a Reserve Study?
RSI Reserve Studies offers 3 levels of Reserve Studies as well as an Annual Inspection to suit your community’s needs.
Level 1: A Level 1 Reserve Study consists of a physical inspection of the property to determine which assets the community has, an asset list, a quantity list of each asset, measurements, a life expectancy of each asset, how many useful years are remaining in the life of the asset, and the current cost of replacement. We will also provide an analysis of the Reserve Fund and give a suggested reserve allocation amount.
Level 2: A Level 2 Reserve Study can only be completed when we are provided with a previous Reserve Study from another company or we have conducted a Level 1 Study on the community. In a Level 2 Study, we inspect the property, but use the previous Reserve Study to determine the assets, quantities, measurements, and life expectancy of the community. We then use those numbers to determine the useful life remaining and the current replacement cost. We also provide an analysis of the Reserve Fund and give a suggested reserve allocation amount.
Level 3: A Level 3 Reserve Study is only a verification of a previous Reserve Study. These studies are mostly done to determine a new reserve allocation amount. There is no physical inspection, therefore we just use the previous Reserve Study to determine how many useful years are remaining and what the current replacement cost is. We then provide an analysis of the Reserve Fund and give a suggested reserve allocation amount. Annual Inspections: RSI Companies has 2 divisions: RSI Reserve Studies, and RSI Builders. By being part of a Company that offers General Contracting, RSI Reserve Studies has the unique opportunity of also offering Annual Inspections. An Annual Inspection is a much more in depth version of the Reserve Study. Instead of taking a general asset in your community and giving a unit price, an Annual Inspection actually inspects each asset to determine the current condition of it. We do this FOR EVERY ASSET IN THE COMMUNITY. Associations should do this to give a real base to the Reserve Study. Sometimes when assets have reached their useful life span according to the Reserve Study, they don’t need to actually be replaced. While the Annual Inspection does come with an added cost, RSI can assure you that it is well worth the money. It can save tens of thousands of dollars per year on maintenance recommended by the Reserve Study.
Are there set guidelines for a Reserve Study?
There is no specific format that a Reserve Study must follow (except that it must follow local statutes) and all companies vary with information provided to the community. However, most comprehensive Reserve Studies should include the following.
- Brief Description of the Community (location, structure type, when built, ect.).
- Comprehensive List of the Communities Assets.
- An Estimate of Life Expectancy for each Asset Item Belonging to that Community.
- Approximate Cost of each Item for Replacement.
- A description of each Reserve Item and Summary of the Inspection.
- Yearly Funding for Items Listed and Balance.
- Percentage of Comprehensive List Funding.
- 30 Year Reserve Account Spread Sheet.
- Estimated annual reserve assessment required (considering current reserve funding balances).
- Reserve Funding Method Used.
- Reserve Study Required Disclosures (NRS116.)
Who is required to receive a Reserve Study or Review?
First, it varies with each state and the association should review the state requirements to guarantee compliance. The State of Nevada Requires that the executive board of an association shall have a study prepared at least every 5 years and a review of the study at least annually. This will serve to determine if the reserve financial levels are sufficient and to allow for adjustment of the reserve levels. A review would be necessary if the Board determines that actual assets depreciated, reserve account balance or unscheduled expenditures were incurred which varies from the study.
How a Reserve Study benefits an Association? Is a Reserve Study necessary for the Community?
A Reserve Study will provide the following:
- Provides a detailed description to the community for long term reserve expenses.
- Develops a Plan to meet the long term expenses.
- Assists in controlling year-to-year budgets for the community’s assessment rates.
- Complies with Nevada State Requirements.
- Develops an inspection of the communities Common Areas for repair and maintenance.
- Produces a detailed list of the communities Common Areas for future or present repairs and or replacement.
- The Community receives an un-biased (3rd party) inspection and projected budget for existing conditions to safeguard the communities future. 8.Minimizes the possibility of a “Special Assessment”.
Does someone have to be licensed to complete a Reserve Study?
A qualified person per State Requirements. The State of Nevada requires each person has a license and is registered with the Real Estate Division of Nevada. To qualify as a Registered Reserve Study Reporter, the State will determine a strict set of requirements that must be met by the Reporter. Only reserve studies prepared by a State Registered Reporters will be accepted as a valid study by the State of Nevada Ombudsman.