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Frequently Asked Questions

What is a reserve study?

The reserve study is basically a long range (typically 20 to 30 years) budget planning tool which identifies the current status of the reserve fund and projects future costs for the maintenance, repair and/or replacement of major common area assets.  It is a critical tool which the board can utilize to develop a budget which adequately funds those costs without special assessments. (back to top)

Why perform a reserve study?

All physical assets deteriorate over a period of time – it is inevitable.  Most HOA’s Governing Documents require the Board to collect an “appropriate” amount of money, on a regular basis, to adequately fund the maintenance, repair and/or replacement of major common area assets.  Having a reserve study prepared allows the board to determine if they are collecting an “appropriate” amount of money, or whether their reserves are being over-funded or under-funded.  One of the advantages of developing a funding plan is that current owners pay a fair share of the costs on a monthly, quarterly or annual basis. (back to top)

Are we required to have a reserve study performed?

As of now the state of Colorado does not require Home Owner Associations to have a Reserve Study performed.  While the passage of Colorado HB 1359 does require all associations to adopt a reserve policy that addresses:

  1. When a reserve study shall be prepared.
  2. Whether the study is based upon a physical and financial analysis.
  3. Whether there is a funding plan for any items of maintenance, repair, replacement, or improvement by the association.
  4. And, if so, the projected sources of that funding.

it does not, technically, require that associations conduct a reserve study. 

However,unless your association has no common area assets, most legal advisers recommend that your association have a reserve study performed that includes a funding plan. (back to top)

Will my monthly association fees increase as a result of the Reserve Study?

Not necessarily.  Association fees may increase/decrease after the “Board of Directors” review the study.  However, the study may also indicate that the current fees are appropriate and that no changes are necessary. (back to top)

What does a reserve study cost?

The cost is determinate upon the style (condos vs. townhomes) and size of the complex, number of units (buildings), number of recreational amenities, etc.  While some companies perform what is called ”bulk” reserve studies, we advise that a more comprehensive and detailed study be performed to eliminate  future surprises.  The level of study also comes into play in determining costs.  Another factor is whether the study is an update for the firm doing the study, in which case they would already have copies of the previous study. (back to top)

Are there different types or levels of reserve studies?

There are basically three different levels of reserve studies.

  1. Level 1 Reserve Study (Full - with site visit) – A Reserve Study in which the following five Reserve study tasks are performed:
    1. Complete component inventory
    2. Condition assessment - based upon careful site-visit observations
    3. Life and Valuation Estimates
    4. Fund Status
    5. Funding Plan

  2. Level 2 Reserve Study (Update, with an on-site review) – A Reserve Study update in which the following five tasks are performed:
    1. Component inventory
    2. Condition assessment – based upon on-site observations
    3. Life and Valuation estimates
    4. Fund status
    5. Funding plan

      Note: Updates are reliant upon the validity of previous studies

  3. Level 3 Reserve Study (Update. No site visit/Off site review) - A Reserve Study update with no on-site visit in which the following three tasks are performed:
    1. Life and Valuation estimates
    2. Fund status
    3. Funding plan

      Note: Updates are reliant upon the validity of previous studies. (back to top)

How often should a Reserve Study be done?

A periodic/annual update should be performed every 1 - 2 years.  If there have been no major changes, or improvements made to the property a Level 3 Reserve Study normally is adequate.  A physical site inspection study should be performed on a 3-4 year cycle. (back to top)

What components are included in a reserve study?

The components vary from association to association, and whether the community is of a Townhouse style, or made up of Condominiums.  Typically, the components are those that are deemed to be ‘common area’ assets such as roofs, exterior painting, roadways, parking areas, fences, recreational assets, and in some cases mechanical components. (back to top)

What are reserves?

Reserves are funds that the Home Owners Association’s board sets aside to cover the projected, and anticipated, costs associated with the maintenance, repair and/or replacement of major common area assets. (back to top)

What are Reserve Allocations?

The reserve allocation is the amount of money to be budgeted annually towards reserves based upon a Funding Plan.  Reserve allocations are very significant in preparing an annual budget, and therefore are a very crucial element of the funding study. (back to top)

What is a Funding Plan?

The funding plan is a primary part of the financial analysis that consists of a funding method and a funding goal.  One of the big advantages of developing a funding plan is that current owners pay a fair share of the costs for the maintenance, repair and/or replacement of major common area assets on a monthly, quarterly or annual basis. (back to top)

What is a Funding Goal?

The funding goal is normally established by the firm conducting the Reserve Study, although through discussion the association may select the funding goal themselves.  With all Reserve Studies there are four basic funding types, or goals.

  • Baseline funding -Maintaining a reserve balance above zero.
  • Full funding - Maintaining a reserve balance at, or near, 100% funded.
  • Statutory funding - Maintaining a specified minimum reserve balance, or minimum percent funded, as required by local, or board, statues.
  • Threshold funding - Establishing and maintaining a minimum reserve balance or minimum percent funded. (back to top)

Can I do a Reserve Study myself?

Yes. There are software programs available that allow an Association to prepare their own study.  However, there are several factors that must be considered before deciding to undertake doing the study yourself.

  • Time: It takes a huge amount of time to measure and calculate the square footage of the roofs, building exteriors, interior streets, parking areas and, compile a list of all the common area assets that make up the complex.
  • Expertise: Do you have the experience, and expertise, to determine 'life expectancy' and 'remaining life expectancy' of all the common area assets?
  • Background: Professionals who prepare Reserve Studys have extensive background experience in construction and building, property appraising or inspections and, have training in properly preparing the Reserve Study. (back to top) 


ColoradoReserveStudyGroup.com

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