[1] Reserve studies are in essence planning tools designed to help the board anticipate, and prepare for, the property's predictable major repair and replacement projects.
There is no reason for leadership to be surprised by the need to perform major building repair or replacement projects that deteriorated often in plain sight and over a number of years.
[3] (This reference returns the error "404 Page not found", but the methods used in cash-flow analyses don't give correct values anyway).
(† : It is important to account for inflation and interest earned in Reserve Study Funding Plans, as these effects are often very significant.
Fairly distribute inflated costs for replacement projects among owners, in proportion to their percent ownership of common elements (as defined in their association documents) for the duration of that ownership, as measured either in any year's constant dollars or in hours to earn at any pay rate assuming owner pay inflates at the same rate as component replacement costs.
Reserve studies are required by the board or manager for due diligence, disclosure, and budget and planning purposes.
An increasing number of U.S. states and Canadian provinces today require some form of reserve planning or disclosures.
In addition to requiring a minimum 10% of the total budget be dedicated to reserve contributions, Fannie Mae and the Federal Housing Administration may ask for a current reserve studies (to demonstrate that the association has dedicated sufficient funds to caring for the ongoing needs of the property) to be approved for FHA insured loans and Fannie Mae lending products and services.
In addition to being helpful planning tools, reserve studies for Community Associations are legally mandated in 30 states (such as California, Florida, Hawaii, Nevada, Virginia, Washington, etc.
[6] With the passing of SB 278 in 2010, the state of Utah also requires condominium and community associations to conduct and review reserve studies on a periodic basis.
These statutes also require that reserve preparers in Nevada be registered and background checked by the State Department of Real Estate (advised by reservestudy.org?).
The guidelines made reserve studies mandatory for all newly converted, non-gut rehabilitation condominium developments to be eligible Fannie Mae project approval.
[20] The ICBI reserve study standards are very specific with respect to the information to be contained in the report and the calculation methods used in providing financial forecasts.
In National Reserve Study Standards terminology,[23] there are two basic ways to calculate contributions: "Cash Flow" or "Component" (also known as "Straight Line").
Due to its greater computational flexibility and its ability to allow the user to focus on and achieve any of the four funding Objectives, the "Cash Flow" Method has seen significant growth in popularity.
Recently, certification criteria have been created to allow for a more ordered system of identifying those individuals who have been specifically trained in the creation of reserve studies.
To obtain this certification, candidates must have prepared at least 30 reserve studies within the past 3 calendar years, hold a bachelor's degree in construction management, architecture, or engineering (or something equivalent based on experience and education), and complied with various other rules and codes of conducts.
The Real Estate Institute of Canada (REIC) offers the Certified Reserve Planner (CRP) program, which is the only nationally accepted specialty designation listed in provincial (some provinces) legislation as qualified.
All DRP designated planners are required to use the RFA Pro Reserve Fund Analysis software or provide a quality assurance report of their chosen calculation methods.
As of 2013, Sauder School of Business Real Estate Division is offering the first of 2 courses towards a certification called the Reserve Fund Planning Program (RFPP), but yet no trade group has recognized this designation.
These three types of reserve studies allow the association to select the "Level of Service" appropriate to their current budget preparation and disclosure needs.
Listed beginning with the most exhaustive, they are: In addition to the above types of Reserve Studies, note that there are different levels of professional engagement.