Reserve Study

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1 Introduction[1]

Our Homeowner Association is a Common Interest Developments (CID), defined by shared property and restrictions in the deed on use of the property. A CID is governed by a mandatory Association which administers the property and enforces its restrictions. Our association is responsible for repairing, replacing, or maintaining the common areas owned by the Association and the roofs, building "siding", and gutters, to name a few which are the property of the unit owners as a common expense.

2 Importance of Reserve Studies

A reserve study provides a current estimate of the costs of repairing and replacing major common expense components (such as roofs, stucco, or pavement) over the long term. Ideally, all major repair and replacement costs will be covered by funds set aside by the association as reserves, so that funds are there when needed. This requires:

  • examination of the association’s repair and replacement obligations;
  • determination of costs and timing of replacement; and
  • determination of the availability of necessary (reserve) cash resources.

Because the board has a fiduciary duty to manage association funds and property, a replacement reserve budget is very important. Not only does this information supplement the annual pro forma operating budget in providing owners with financial information; the reserve study is also an important management information tool as the association strives to balance and optimize long-term property values and costs for the membership.

For buyers, understanding the reserve study is an important part of evaluating the value of a CID property. For association members, reserve planning helps assure property values by protecting against declining property values due to deferred maintenance and inability to keep up with the aging of components.

A good reserve study shows owners and potential buyers a more accurate and complete picture of the association’s financial strength and market value. The reserve study should disclose to buyers, lenders, and others the manner in which management of the association (i.e., the board and outside management, if any) is making provisions for non-annual maintenance requirements. Preparing a reserve study calls for explicit association decisions on how to provide for long-term funding, and on the extent to which the association will set aside funds on a regular basis for non-annual maintenance requirements. A good reserve study may also function as a maintenance planning tool for the association.

Our current board has chosen not to follow several recommendations in our most current Reserve Study.

3 Willistown Knoll 2011 Reserve Study

Click here for the complete Reserve Study:
Precision 20/20 Full Reserve Study for Willistown Knoll Homeowners Association

4 Notes

  1. Some content on this page is derived from the State of California Department of Real Estate: RESERVE STUDY GUIDELINES for Homeowner Association Budgets August 2010