A Reserve Study is a tool to analyze and assess the physical health of any property. In the case of Association-governed communities like condos, co-ops, HOAs, OAs, POAs, and PUDS, the property’s future is in the hands of the Board of Directors. With Reserve contributions typically 15-40% of an association's entire budget, a Reserve Study that is updated on an annual basis safeguards board members from any liability that may arise from any evidence that the reserves have been mismanaged or poorly maintained.
The Reserve Study has three main purposes:
To establish a complete list of common area components, along with how long it will be until each will need to be repaired or replaced and the cost of those projects.
The second result is an assessment of the strength of the current reserve fund, relative to all the deterioration identified in the component list.
Unfortunately, most properties are under-funded, meaning there will not be enough money available at the estimated time when those resources will be needed to do the required repairs or replacements.
The third and most important result is the Funding Plan. This is a plan of recommended reserve contributions required to make all necessary repairs and replacements in a timely manner, without reliance on outside sources of funding, like Special Assessments or loans.