Replacement Reserve Studies

Reserve studies may be used to determine the appropriate level of reserves the HOA must maintain to ensure the project’s long-term success. Reserve studies will also provide useful information regarding the adequacy of the HOA’s current reserve funds and offer recommendations to meet funding goals in the event the HOA has under-reserved for its needs in the past. The underwriter may review the most current reserve study or a reserve study update provided it has been completed within three years of the date on which the undewriter approves the project.

Reserve studies must be prepared by an independent third party that has specific expertise in completing reserve studies. This expertise may include any of the following:

• a reserve study professional with reserve study credentials,

• a construction engineer,

• a certified public accountant who specializes in reserve studies, or

• any professional with demonstrated knowledge of and experience in completing reserve studies.

While Homium does not require that a standard format be used for the reserve study, the following items must be addressed:

• all major components and elements of the project’s common areas for which repair, maintenance, or replacement is expected;

• the condition and remaining useful life of each major component;

• an estimate of the cost of repair, replacement, restoration, or maintenance of major components;

• an estimate of the total annual contributions required to defray costs (minus the existing reserves funded for this purpose), including inflation;

• an analysis of existing funded reserves; and

• a suggested reserve funding plan.

Note: Individual states may have various statutes concerning the use and content of reserve studies. Homium requires that a reserve study used by the underwriter in their analysis meet or exceed requirements set forth in relevant state statutes.