A reserve study identifies a homeowner association's future repairs and replacements like a snapshot in time. Imagine that you could picture the buildings and grounds as they would be in five, ten, even thirty years. A reserve study acts just like that by estimating the useful life of the common elements and the cost to replace them in the future based on current cost adjusted by inflation.
Even the smallest HOAs have at least 15 items that should be included. Large HOAs can have hundreds. A reserve study uses a component inventory analysis of the HOA's common elements having useful lives of between 2 and 30 years to project scheduling coupled with a funding plan. Those components consist of the obvious, like roofing, painting, paving, fencing and the not-so-obvious like treework, landscape renovation and inspections (elevator, fire sprinklers and alarms, tripping hazards).
Common elements deteriorate over time and as do the underlying assumptions of the reserve study. Reserve studies can be affected by new labor-saving techniques, building designs and materials that reduce projected costs or extend useful lives. As these changes take place, so should your reserve study.
Annual review and update of the reserve study confirm that the schedule and costs are still accurate. And it's not always bad news that affects the review. Age, condition and rate of deterioration can be positively impacted by preventive maintenance implemented by the association which increases useful lives. Changes in area inflation and the actual interest earned from invested reserves need to be revised as well.
The good news is the annual review is a snap compared to the initial reserve study which requires significant field work to compile data.
Article published in Realty Times 12/06/17 written by Richard Thompson of Regnesis.net.