CONDOMINIUM RESERVE STUDY

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Consider all of the elements of a condominium property. Outside, tenants might share parking lots, pools, sidewalks, and ponds. There are the roof, the facade, and the foundation of the building. Inside you find everything from common walls, elevators and boilers to fire, sprinkler and mechanical systems. All of these commonly owned assets must be maintained and will eventually reach the end of their useful lives. Condominium association boards are responsible for budgeting for these repairs and replacements. Reserve Studies are used to create these budgets.

Professional reserve study analysts conduct reserve inspections for condo associations. Any property with commonly owned effects should regularly have a reserve study conducted. Some elements of a reserve study are unique to the condominium association, but reservists must adhere to Community Associations Institute’s guidelines.

 Just as no two condominiums are exactly the same, no one funding rule is adequate for all condominium associations. It is important to note, though, that some states have reserve funding requirements. Lenders, too, typically require adequate funding of reserves. For example, Fannie Mae sets a, “minimum annual budgeted replacement reserve allocation of 10%.”

• 30-40% of the association’s annual operating budget
• 70% of the condominium’s reserve fund
• 5 - 10% of the sales price of the condominiums

Reserve Studies do not cost, they save! Given that a reserve study is a condominium association’s most valuable expenditure, it is a relatively inexpensive tool. The cost of a reserve study is dependent on several factors. Reserve firms will assess the number of condominiums and the location of the property. Then, they will take into consideration the number and type of common elements.

The type of study required also affects the cost. The most in-depth condominium reserve study will include a site visit and require measurement and quantification. A thorough but less involved site visit will cost less. Less expensive still is a follow up reserve study that does not require a visit to the condominium.

The cost of reserve studies represents a small percentage of an HOA’s annual budget. The return on investment includes stable property values and finances. Condominium owners will not risk unexpected special assessments and costs of preserving the property will be equally shouldered among past, current and future homeowners.

 National Reserve Study standards have been detailed by CAI, the licensing board for reserve analysts. Homeowners associations and property managers are tasked in many states with the responsibility of ensuring condominium reserves are regularly updated. In Maryland, for example, HB 107 was recently passed and requires a new reserve study every five years. Likewise, the Virginia Condominium Act requires a reserve study every five years. A complete listing of states requiring reserve studies for homeowners associations, take a look at CAI’s Reserve Requirements and Funding page.

Beyond state requirements, managers and HOA boards should regularly update reserve studies. Every 3-5 years, reserve studies should be updated. Keep in mind the fact that repair and replacement costs are consistently on the rise.