How Often Should A Reserve Study Be Done?

Every community is ever-changing in its unique physical and financial status and needs. Plans change, component deterioration happens, and economic factors can reshape the way an association tackles maintenance and financial planning. Because of these natural disruptions to a reserve study’s plans, updating your reserve study is crucial to maintain an accurate understanding of your community. The Community Associations Institute’s Reserve Study Standards, revised and re-published in 2022, recommend a Level II Reserve Study at least every three years.

Types of Reserve Study Updates

A level II reserve study is an update of a prior study that includes the reserve specialist visiting the property and re-inspecting each component. The site visit allows the reserve specialist to ensure that component quantities are accurate and conduct detailed condition assessments and life and valuation estimates as they would during an initial reserve study. A level II study is nearly identical to a full reserve study, with one minor difference. Where a full reserve study establishes a quantified component inventory, level II updates simply ensure the inventory remains accurate. A level II reserve study is recommended every three years by CAI specifically to guarantee that the remaining useful life of each component and their respective funding plans remain accurate, leaving minimal room for surprise expenses that could force deferred maintenance or compromise resident safety.

A level III reserve study is an update of a previous study that does not include the reserve specialist visiting the property. Rather, the reserve specialist analyzes and adjusts the schedule of capital projects and funding plan based on which components were repaired or replaced since the last study. The existing funding plan is altered to reflect the current reserve balance, and future funding needs are then re-calculated. While a level III study is a cost-effective solution to account for current economic conditions, this update type should not be relied upon if the association has not had a study with a site visit in the last two years due to its limited scope. The condition of any component can deteriorate at an unanticipated rate, and if a miscalculation of a component’s useful life is incorporated into the study, both the project schedule and funding plan will not be accurate. This is why a full reserve study or a level II reserve study with a site visit are recommended on a 3–5-year basis.

Timing of Reserve Study Updates

Because each property is unique, so is the appropriate timing of reserve study updates. Based on our experience, older and more complex properties (i.e., a high-rise structure built prior to 1980) may need to update their study more frequently than every three years. Newer, less complex properties can generally follow CAI’s guideline of updating on a three-year basis as there are likely fewer major components needing near-term replacement. For example, newer communities will only require minor repairs as needed on long-lived assets such as piping, given that these systems are new. But, for an older community, components like piping begin reaching the end of their useful life and may need a full replacement. Piping replacement is an incredibly expensive project, so it is paramount that associations are prepared in advance to fund such projects. By updating the reserve study more frequently, older associations can ensure they are funding reserves properly for timely replacement of critical components.

The timing of major projects can also be a contributing factor to update timing. Getting a reserve study up to date prior to a major project can help provide guidance on funding options, including the possible use of a loan if needed. On the flip side, if a capital-intensive project has just been completed, an update can guide associations towards re-building a sufficient reserve balance. Deferring or accelerating the timing of major projects, or if a component is increasingly experiencing problems, can also prompt the need for a reserve study update.

In some cases, communities can safely wait longer than three years to conduct an update. However, this decision should be made together with your reserve study provider. At Reserve Advisors, we provide complimentary consultations to discuss the merits of updating your study versus delaying the service, and if your community can push back an update without financial or physical risk, we can inform your board.

Updating your association’s reserve study is essential for the financial and physical wellbeing of the property and residents alike. Updates keep funding plans and repair and replacement schedules on track, and current and future homeowners will benefit from stable, equitable reserve contributions. Boards can fulfill their fiduciary responsibilities by utilizing an up-to-date reserve study, keeping the association happy, healthy, and financially sound.