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What to Provide Your Preparer for Best Reserve Study Results

By Clifford Bates

Is a reserve study a science or an art form? I say it is both. The Cambridge English Corpus states, "Science shows the unity, while art shows the diversity of the riddle which we call the world." So now we have introduced a "riddle," which is defined as, "A baffling, misleading, or puzzling question presented as a problem to be solved or guessed." It appears that I am not making the concept of reserve studies any clearer to the reader, but stay with me and I will explain.

You do not have to look very far into the history of homeowner association management to see the birth of reserve studies. There was a time, not very long ago, when neither the governing documents nor the regulating agencies had any requirements that were to be adhered to regarding long-term maintenance, repair, or replacement. As the concept of identifying future, long-term costs for repairing and replacing common area components for aging facilities became more customary and accepted as a beneficial planning tool, so was born the reserve study. In 1998, the first National Reserve Study Standards were published to provide a consistent set of terminology, calculations, and expectations so reserve study providers and those they serve can build a successful future.

Now, fast forward to the present. Every association is created with an annual budget, which includes a component list and estimated repair or replacement life and cost. It is generally agreed that good association management practice calls for a fixed amount of funds to be set aside each year to ensure that the association will have sufficient funds on hand when a predictable major expense must be paid. This is a good start, but it must be followed up by an annual review of all components and assumptions. Assuming the manager and board of directors have hired a reserve study specialist, you will be asked to provide the details of maintenance and replacement responsibilities, as well as financial history and facility data, every year. The better you are at providing these details to your reserve study specialist, the better they will be able to provide you an accurate reserve study.


A reserve study can be split into two parts: physical analysis and financial analysis.



  •  Maintenance Responsibilities – will be defined in the CC&Rs. However, any additional details on your practical application of facilities care will be valuable to the preparer.
  •  Current Reserve Study – or initial reserve budget.
  •  Component Inventory – should be ascertainable from both the CC&Rs and current reserve study. If you have identified some details that were not previously included, or your preparer is contracted to review the site conditions, it is likely that some elements may have been missing and need to be added. This also includes some components that may have begun with a remaining expected life of greater than 30 years and were not included in the original component list but as they have aged the remaining life has become less than 30 years. Tile roofing is a good example of this. It is also possible that while maintaining or replacing components you have upgraded with a different type of construction, more valuable materials, differing life expectancy of the upgrade, or quantity of material used. Paver stone replacing an asphalt or concrete patio is a good example. Be sure to accommodate access to all areas such as clubhouses, rooftop equipment, utility vaults, and mechanical equipment closets and rooms. Also, access to your staff, vendors, and contractors could provide your preparer with valuable information that you may not have thought to provide.
  •  Site Condition Review – should be performed by your preparer, or if that is not included in the work you have contracted for, should be performed by the manager or volunteer member. Conditions can change from one year to the next. New potholes in the road after a winter of heavy rains are a good example.
  •  Remaining Life & Current and Future Valuation – are changeable based upon the impact of use on the component and current costs of materials and labor as well as forecasts for economic influences on pricing. The knowledge and experience of the preparer is critical here.
  •  Technological Upgrades – can impact the life of a component or add a new component that did not require a member’s approval. New camera systems are a good example.


  •  Current Financial Position – can be determined from the current interim balance sheet. Any unique situations should be explained: special assessments, loans, litigation, property losses, and insurance claims. While the snapshot of the balance sheet is critical, so are the influencing factors that may have or could cause changes to it.
  •  Projected Financial Position – on the date specific for the reserve study. This will change from the current financial position based upon planned funding income and component repair or replacement between the two dates.
  •  Historic Financial Expenditures – will include any reserve projects performed from the date of the last reserve study. If available, the actual plans, specifications, scope of work, contracts, and invoicing may contain information that the preparer will use while updating. With most accounting software you will be able to extract the reserve expenses straight from the general ledger.
  •  Pending or Planned Expenditures or Capital Improvements – should be shared with the preparer. Many projects can have significant lead times while the decisions are made by the board when the project is within their authority or when it is required that the members approve the expenditure.

At this point, the reserve study specialist should be ready to prepare the funding plan and finalize the reserve study. You will want this draft in hand as you begin your budgeting for the next fiscal year (around month 8; August if your fiscal year is aligned with the calendar year). It is important that you allow your preparer the time that is necessary to properly do his or her work. This should be discussed with the preparer when you enter into a contract earlier in the year.

Before contracting for your reserve study, you will want to discuss with the board if they would like to retain the reserve study specialist that last performed the work or solicit bids from others. While the cost of services is important, changing providers for a small differential in pricing may not be beneficial. Conversely, a new set of eyes on the physical plan and financial planning can uncover some beneficial perspectives.

Now that you have done your job in providing the best information to the preparer, and they have done their best to present your reserve study, it is time to use it. Be sure to read the reserve study and understand it. Ask questions of the preparer and be ready to help educate the board of directors on the content and use it to influence the board’s decisions in the future. The reserve study is a very useful tool that should be referred to regularly. As you use it to make decisions, you should also begin to make notes for the next reserve study.


Clifford Bates is the president & CEO of Jean Bates & Associates, where he began his career in HOA management in 1987. The company provides portfolio management for the northern California Bay Area.



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