Condo Media - July 2013 - 48

by Mitchell H. Frumkin, PE, CGP, RS

OPERATIONS

THINGS
TO KNOW

BEFORE YOUR NEXT
RESERVE STUDY
Preparing for a Physical and Financial Analysis

ommunity associations are
charged with the responsibility of maintaining the property
value of their common elements.
To do this properly, the association must
develop a funding plan for future repairs
and/or replacements of major commonarea components. A reserve study is a
professional budget-planning tool involving both a physical and a financial analysis
that does just that. After determining the
estimated remaining useful lives of the
association’s components and identifying the current status of the association’s
reserve fund, the reserve study report
establishes a stable and equitable funding plan to offset the anticipated future
major common-area expenditures.
In addition to providing a specific
plan for the replacement of major items,
reserve studies meet legal, fiduciary and
professional requirements. Reserve studies also minimize the need for special
assessments and enhance resale values.
Before obtaining your next reserve
study, you should know the following:

ists and professional engineers undoubtedly have the expertise and experience
to compose more accurate and effective
studies. The reserve specialist designation is awarded by Community Associations Institute (CAI) to those who
have a bachelor’s degree in construction
management, engineering, or architecture and have prepared at least 30
reserve studies in the past three years.
By obtaining this designation, the individual has proven through a combination of education and experience that he
or she is qualified to perform a reserve
study in conformance with the National
Reserve Study Standards of CAI. Since
a significant portion of a reserve study is
based on the condition of the individual
components included within the study,
such as roofs and roads, it is important
that they be assessed by someone with
extensive field evaluation experience and
knowledge. Being a licensed professional engineer confirms that the person has
been trained and educated in performing this type of evaluation.

All reserve studies
are not equal.
Years ago, most reserve studies
included a list of all of the association’s

All reserve study preparers
are not equal.
Although a reserve schedule could
be prepared by anyone, reserve special48

Condo Media • July 2013

components, their replacement costs,
and remaining useful lives in order to
determine what the next year’s funding
should be. To avoid being short sighted
and focusing on only the next year’s
replacement items, CAI developed
national standards that consider longterm planning decisions. According to
CAI’s National Reserve Study Standards, all reserve studies require both
a physical and a financial analysis. The
physical analysis determines the existing
condition of the common elements. The
financial analysis includes a 20-to-30year cash-flow projection of the reserve
fund and focuses on the planning and
budgeting of replacing these common
elements. By providing this projection,
the association is able to make an informed decision in regard to how much
money should be set into the reserve
fund each year to feel comfortable that
a special assessment will not be required
over the life of the projection.

Full funding may
mean over-funding.
The National Reserve Study
Standards of Community Associations
Institute recommends four different
funding goals to choose from as a basis

Condo Media - July 2013

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