What is a Reserve Study?
A reserve study is a long-term capital budget planning tool which identifies the current status of the reserve fund and a stable and equitable funding plan to offset ongoing deterioration, resulting in sufficient funds when those anticipated major common area expenditures actually occur. The reserve study consists of two parts: the physical analysis and the financial analysis.
A reserve study document is prepared by an outside independent consultant for the Board of Directors of a property with multiple owners, such as a recreation association, condominium association or homeowners’ association.
Reserve studies are in essence planning tools designed to help the Board of Directors anticipate, and prepare for, the property’s major repair and replacement projects. For example, such projects would include: replacement of the roof on the building(s), replacement of the boiler, retrofit of the fire alarm devices, and pier replacement.
DPA reserve studies are performed at the direction of the Board. The activities include:
- On-site review of facilities
- development of a reserve component inventory
- condition assessment based upon on-site visual observation
- life and valuation estimates
- fund status
- a funding plan