What is a Reserve Study?

Like all things, condominium buildings get old.  Eventually, things need to be replaced.  The roof might start leaking, the fences may start to deteriorate, or the walkways may begin to crumble.  Maybe these things haven’t happened yet, but they could happen soon.  Of course, when the time does come, all of these repairs will cost money.  In these cash-strapped times, who has enough of that?  How can a condominium association plan for these repairs now to prevent financial insolvency later?

As an association begins to age, it should consider completing a reserve study.  A reserve study is usually conducted by a team of building and construction professionals.  The company you hire to do this will probably utilize both engineers and architects in its evaluation.  The professionals will come out to your building and do a thorough review of all of your systems.  After the review is complete, they will give your association the estimated life expectancy of integral items, such as the roof, fence, driveway, siding, etc.  Usually, they can even provide a range for estimated replacement costs.

Based on this information, the association can then begin budgeting appropriately for repair projects they may encounter in the near or distant future.  Many associations have successfully implemented a plan involving one or more of the following to increase their savings for long-term repairs:  1) shopping for new vendors at lower prices; 2) negotiating down current vendor prices; 3) moderate increases in regular assessments; 4) occasional special assessments, especially for smaller projects, so as not to spend down savings; and 5) investing savings in interest-bearing accounts.

Reserve studies, of course, are not free.  A smart condominium association will speak with and obtain proposals from various companies specializing in reserve studies to determine which company they are comfortable with and who provides fair pricing.  But after doing its due diligence, a condominium association may find that the investment it made in the reserve study will pay off in the long-term!