Reserve Fund Studies
Our reserve studies serve as crucial long-term financial analysis tools for homeowners associations. Request a proposal for our reserve study services and we’ll be in touch with you.
Our Reserve Studies Give You A Plan For Success
With over half a century of combined experience in working with the Department of Real Estate’s investigators, California Builder Services has the experience to accurately and efficiently complete reserve studies on all types and sizes of developments.
We are acutely experienced in the application and use of reserve studies, as we have created thousands of homeowner association budgets, all of which have been reviewed and approved by the Department of Real Estate’s Investigators.
We know how important it is to have a reserve study prepared by a group that is so familiar with the requirements of the Department of Real Estate.
For California property owners, the Davis Stirling Common Interest Development Act sets forth the requirements for budgets and the information that must be included in a reserve study. More specifically, Civil Code section 5550 requires a reserve study to be completed at least every three years and reviewed annually.
For this reason, many associations will have annual financial analysis updates to the Study, to reflect the changing financial information of the HOA without a site inspection.
The Reserve Study Process
Specialist of the Community Association Institute
Why Should You Do A Reserve Study?
A reserve study enables community associations to fulfill their primary duty, which is to maintain and preserve the property values of their residential units and common property. A reserve study, known by some as a replacement fund, allows you to meet the legal, fiduciary, and professional requirements of banks, lenders, courts, and your community’s governing documents.
Protect & Enhance
Having a proper reserve funding plan helps community associations subsidize urgent, expensive repairs without requiring special assessments of homeowners within your homeowners’ association. When you use reserve funds to cover emergency repairs instead of special assessments, residents within your homeowner association will attract buyers and demonstrate sound financial leadership to those within your development.
When a homeowners’ association hires professionals to conduct their HOA reserve studies, community residents are treated to a fair reserve funding contribution plan rather than unpredictable (and unpleasant) special assessments. When board owners treat homeowners fairly and equitably, residents will be more likely to stay, and your HOA reserves will be well-stocked.
Sound Financial Planning
It’s an unfortunate reality that many HOA reserve funds are undercapitalized due to poor financial planning and inadequate oversight. A lack of reserve funding often deters buyers because they consider the results of a reserve study to evaluate the value of common interest development (CID) property. However, buyers note when an association hires a reserve analyst or reserve specialist to determine the funding needed to maintain common elements and units since it signifies prudent leadership.
Homeowners within a community expect professional association management and accurate reserve studies. Suppose an association management team routinely places special assessments on its members to cover an unexpected replacement cost or obtain funding to repair common elements. In that case, members will be unlikely to stay in the community for long. Ideally, an association’s emergency maintenance and future major expenses will be funded from capital reserves in the reserve studies.
When a homeowner contributes to an association’s reserves, they trust that those funds will be handled appropriately and allocated toward the maintenance and management of the units and common areas within that community. Well-funded reserves engender trust among community members due to the professional management it represents. Adequate reserves also provide the capital needed to reduce the number of special assessments placed on members of the community.
Reserve Studies Resources
Frequently Ask Question
About DRE Public Report Processing
A Reserve Study is a budget planning tool used by condominium associations and homeowner associations to create an effective funding plan for anticipated common area maintenance expenses over 30 years. Reserve Studies are vital to implementing and maintaining a financially healthy community association.
Lending institutions such as the Federal Housing Authority (FHA) are adopting stringent requirements in the hopes of ensuring a minimum standard of Reserve Fund health. Some studies also show that an association with a fully funded reserve account, as evidenced by a Reserve Study, will help maintain and increase the property value of the homes.
The Reserve Study includes two parts; a physical analysis and a financial analysis.
The physical analysis consists of a site inspection which is a limited visual inspection of the association’s common area components and quantity of assets. The purpose of the physical analysis is to identify common area components, perform a condition assessment, determine useful life, estimate remaining useful life, and estimate the major repair or replacement costs.
The financial analysis assesses the association’s current reserve balance, together with the future costs, to determine recommendations to the association for an appropriate reserve funding contribution rate. The financial analysis will include three funding models from which you can choose to best fund your HOA reserves.
A reserve fund study provides the essential information needed to guide the Board of Directors in their budgetary decisions for their community. In addition to assisting the Board of Directors in determining the correct amount of money to go into the Reserve Fund, the reserve fund study also serves as a guide for obtaining and evaluating proposals in advance of pending projects.
The Reserve Study will also be a valuable tool when working with real estate and lending institutions for potential homeowners. It is often requested to reveal the strength of the reserves before purchasing a property. A well-documented and strongly funded HOA reserve fund increases property values and marketability.
Reserve studies provide four key pieces of information, useful for both annual budget planning and disclosure purposes. The results are part of National Reserve Study Standards:
- Assessment and Reserve Funding Summary Disclosure Statement
- A full and complete Component List, including photographs and a summary of the item
- Strength of reserves are shown as a Percent Funded, along with future estimated cost planning
- Recommended HOA Funding Plan
The process for reserve studies starts with the request for a proposal. Proposals can be obtained by filling in the request form on this website or alternatively by calling our office or through our contact form.
Since an HOA reserve study is a budget planning tool, most Associations start the process by soliciting a proposal for reserve studies approximately six months in advance of their Fiscal Year (FY) End. This gives the HOA community’s board enough time to have the study completed, reviewed, and to incorporate the funding recommendations into the budget for the upcoming Fiscal Year.
Yes. This is actually part of our proposal process for reserve studies. Though not all HOA boards take us up on this offer, we feel that it is beneficial to review the report of reserve studies with the board members or property managers and, at a minimum, perform a Q&A session to get their feedback. Although we present a finished product the first time we send a copy of our report to a client, we always anticipate comments and changes and include those complimentary. Every effort is made to have a finished product that all are happy with, representing an accurate funding plan for your development.
A “Reserve Component” is an item that is the responsibility of the association to maintain, has a predictable useful life expectancy, typically occurs on a funding timeline that exceeds one year, and costs above a minimum threshold cost.
“Operating Component” expenses are typically expenses that occur on an annual or monthly basis or are below the minimum threshold cost for the Reserve list.
The HOA reserve inspection is conducted following a review of the documents that establish and identify all common area assets. Measurements are taken, and a summary inspection of the property is completed. Estimated life expectancies and life cycles of common area components are based on conditions that are readily accessible and visible at the time of the inspection. The inspection does not include any type of intrusion or intervention other than normal use and viewing of the components.
Timing requirements for reserve studies differ with varying state legislation, but every association that has common area components should have an HOA Reserve Study prepared on a periodic basis.
For California associations, Civil Code section 5550 states a full Reserve Study shall be completed at least once every three years. If applying for a Public Report, the Department of Real Estate requires a Reserve Study to be completed within the first year after the development is completed.
It’s very common for associations to have the Reserve Study updated annually. This happens for a multitude of reasons, including assessment changes and updated future cost estimates.
A Reserve Study should be used to assist a board in making budgetary decisions for the coming financial year. This means the Reserve Study should be completed in advance of the board meeting.
While the law states that a full study should be done every three years, it goes on to state that an association’s board should review the study annually. Many experts in the field believe the law suggests annual updates to the study to reflect the financial aspect of the HOA without an inspection.
Reserve Study preparation requires copies of the current budgets, balance sheets, site maps, access keys/codes, vendor proposals, recent invoices, preferred vendor contacts (painters, pavers, landscapers, etc.), and any prior studies. Our staff will obtain all maps, site plans, and recorded CC&Rs. An in-person visit may also be necessary for full reserve studies. An annual reserve update typically doesn’t require a site visit.
For Subdividers of existing subdivisions or condominium conversions, the Department of Real Estate (DRE) requires the submittal of a Reserve Study for use as an evaluation tool that serves as the ‘baseline’ for the proposed HOA Start-Up Budget.
Any business or professional association responsible for the long-term maintenance and replacement of significant assets can benefit from a Reserve Study.
This ensures that there is no future loss of value due to the deterioration of the assets or common elements. Reserve studies are generally performed by a reserve analyst for homeowner associations, townhomes, condos, and property owners’ associations and business parks, commercial office complexes, general businesses, and municipalities.
A reserve study report typically includes the following information:
- A brief description of the association, its physical traits, and the number of units
- A snapshot of the financial condition or status of the reserve fund
- The projected beginning balance for the reserve fund
- Recommended reserve contributions over a period of up to 30 years
- Projected reserve expenses for a period of 20-30 years
- Projected ending balance of the reserve fund
- A list of the association’s part inventory, along with the quantity, description, useful remaining life
- The current and future replacement costs, with the source of the cost estimate and repair work
- Identification of the fiscal year and the projection period