FEATURE
Reserve Studies: Basics & Levels of Service By Mallory Paproth
replace, restore, and maintain over 30 years. The financial analysis combines anticipated component expenses with the reserve balance and anticipated future allocations for the Reserve Study is a dynamic report that reflects the longfund status and creation of the funding plan. term health of a community and tells the financial story While certification or licensing is not required for reserve of where a community is going. It is important to understand professionals, CAI offers a designation for reserve analysts what a reserve study is, the roles boards and management that meet and uphold specific criteria, known as Reserve play, and key takeaways from your community’s reserve study. Specialists. The Reserve Specialist designation picks up where For the purposes of this article, common interest develop- the Davis-Stirling Act fell short on reserve study details. This ment (CID), homeowners’ association (HOA), community, is where the reserve study ‘levels’ first appear and is standard and association are used interchangeably. industry terminology. Let’s start off with the law. In the Now that you are refreshed on what a "The physical analysis California Civil Code, the Davis-Stirling reserve study should contain, which level includes component Act was specifically designed to govern of service do you need? inventory, condition common interest developments in There are three levels of service, Level assessment, and life and California. An HOA must have a reserve 1, Level 2, and Level 3. Levels 1 and 2 are valuation estimates." study performed once every three years on-site reserve studies, which means they to conduct a reasonably competent and both satisfy the Civil Code’s requirement diligent visual inspection of the accessible areas of for an on-site inspection. The only difference the major components (Cal. Civil Code § 5550). is a Level 1 includes full quantification of the major compoThere are two parts to every reserve study: a physical nents of the association. A Level 1 generally only needs to be analysis and a financial analysis. The physical analysis done once, to establish the component inventory. A Level 2 includes component inventory, condition assessment, and verifies and analyzes components, but does not count and life and valuation estimates. These are the major assets of measure the common area. A Level 3 Reserve Study is also the common area that the community is required to repair, called a financial update. Although not required by law, they
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Quorum May, 2019
