How do you read a reserve study?
Start with the executive summary for the percent funded, the recommended annual contribution and the funding goal. Then read the thirty-year cash flow table to find the lowest balance and the year it falls in. Only then go to the component list, and check it against what you know the association owns.
On this page
A reserve study is written by a specialist for a board of volunteers, and the two do not always read the same way. The specialist builds the report from the component list up; the board needs to read it from the conclusion down. This is the order that works, with the question to hold in mind at each stop.
1. The executive summary
Every report worth its fee opens with a page or two that states the date of the site visit, the level of the study, the reserve balance on the measurement date, the fully funded balance, the percent funded, the funding goal the plan is built on, and the recommended contribution for the coming year. Read that page twice. If any of those items is missing, write to the firm before the board meets; a report without a stated funding goal cannot be judged.
The question here: does the recommended contribution differ from what we budget now, and by how much per unit per month?
2. The thirty-year cash flow table
Skip the component list for now and find the projection, usually a table with one row per year: starting balance, contributions, interest, expenditures, ending balance. Some statutes set the horizon; Washington’s reserve study law, for one, specifies what the projection must include. Run a finger down the ending-balance column and find the lowest figure. That year is where the plan is tightest, and the components spent in the years just before it are the ones that matter most.
The question: what is the lowest balance, which year, and what would happen if the big expenditure before it arrived two years early?
3. The funding plan options
Many reports show more than one plan: the recommended one and alternatives built on the other funding goals, or a stepped plan that raises contributions gradually. Compare them on two numbers, the contribution per unit per month and the lowest projected balance. A plan with a lower contribution and a lowest balance near zero is not cheaper; it is a special assessment on a delay.
The question: which plan did the firm recommend, and why that one for us?
4. The component list
Now go to the inventory. Read it against the property you know. Is every building’s roof there? The elevators, the fire panels, the gate operators, the pool heater, the retaining walls? Are the quantities plausible? Is anything on the list that the association no longer owns or that owners, not the association, must maintain under the governing documents? A missing component is money nobody is saving; an extra one inflates the contribution.
Then look at the remaining useful lives. Anything at zero, one or two years is a project the board should already be planning, and the report should say so. Compare the replacement costs with any recent invoices the association has for the same kind of work.
The question: is anything missing, extra, or priced in a way that does not match what we have paid lately?
5. The assumptions page
Somewhere near the back is a page of assumptions: the inflation rate applied to costs, the interest rate assumed on the balance, the component threshold below which items were left out, and the measurement date. Small changes to inflation and interest move the thirty-year numbers a long way. If the report assumes 3 percent inflation and the association’s recent bids have risen faster, say so when the study is updated.
The question: are the inflation and interest assumptions reasonable for the next few years?
6. The photographs and the condition notes
The appendix of photographs and condition comments is the evidence for the remaining-life estimates. It is also the part owners find most persuasive at the annual meeting. A photograph of ponding on a flat roof does more for a contribution increase than a cash flow table.
7. What the statute asks you to do with it
In the states that require a reserve study, the law usually says what follows: adopting a budget based on the study, disclosing it to owners or buyers, or reviewing it on a set cycle. Hawaii’s statute, for example, ties the association’s budget to its reserve study and sets out how reserves are to be assessed. Read the state’s requirement next to the report and note the dates it sets.
Before the vote
Put four lines in the board packet: the percent funded, the recommended contribution against the current one, the lowest projected balance and its year, and any component due within three years. A board that has those four lines can vote on a budget with its eyes open, and an owner who reads them understands why the assessment moved.
Where our information comes from
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