A Reserve Study is a Budget Planning tool to plan funding of the Association Reserve Account.
The Funding is for Large Expenses that are not “day- to-day” expenses.
The Funding allows the equal distribution of “Savings” so that the Association has the money available when it is needed.
Why Have a Reserve Study?
-Required by Nevada Law (NRS 116.31152)
-If you are selling your home, many financial institutions will not lend money on a home in an association without a properly funded Reserve Study.
-A properly prepared and Funded Reserve Study ensures that you will not have huge assessment increases or special assessments in the future.
-And most important, a Reserve Study ensures that your Association will be a better place to live, now and in the future.
The Reserve Study is prepared by an outside independent consultant for the benefit of the Board of Directors of a property with multiple owners, such as an HOA, to determine a funding plan for the commonly owned property components as determined by the particular association`s CC&Rs and bylaws. (NAC 116A.410-440)
Reserve studies however are not limited only to condominiums and can be created for other properties such as time shares, resorts, hotels, apartment buildings, office parks, worship facilities, swimming pools, private (golf/social) clubs, and private schools.
Key Words: Repair, Restoration, Replacement, Maintenance of ….. The Major Components of the Common Elements and Major component of the common elements.
The Reserve Study is Made up of Two Parts:
- The Physical Analysis
- The Financial Analysis
The Physical Analysis:
Site Visit by RS
Real numbers and costs from Management
Contact with local Contractors/ Experts
Historical input from Management and Board
The Financial Analysis
How much money is “in the bank?”
What are the future expenditures?
What money is needed to cover the cost of the expenditures? (NAC 116.415)
The Reserve Study Specialist will need “The Facts”
- Number of Assessment Paying Members
- Copy of CCR’s
- History – Recent Costs/ Work Completed
- Future Plans
- Reserve Bank Balance or Estimated Balance as of Start Date of Study – Interest Rate
- Physical Address of Property
- Age of Property/ Components
- Current Annual Contribution to the Account
Duties of the Board
The Executive Board Shall:
(a) At least once every 5 years, cause to be conducted a study of the reserves required to repair, replace and restore the major components of the common elements…
(b) At least annually, review the results of that study to determine whether those reserves are sufficient; and
(c) At least annually, make any adjustments to the association’s funding plan which the executive board deems necessary to provide adequate funding for the required reserves.
The budget to define adequate funding shall include:
Current estimated replacement cost, remaining life and useful life of each major component.
Current estimate o the cash reserves necessary and the amounts that have been set aside to maintain, repair, replace or restore component
Current statement from the Executive Board if they anticipate or have determined to levy a special assessment to adequately fund the reserves or maintain the components.
What if we need to spend the money now, and the replacement isn’t scheduled in the Reserve Study until next year?
What if Repair or Replacement is scheduled this year and we don’t need to do it now?
A Reserve Study is a “Working Tool” or a “Living Document” that should be update and changed so that it is more and more accurate in the future.