A reserve study is a document that synthesizes a lot of information about a community association into one 25-100 page financial report. To issue a credible report, the reserve analyst needs to receive some background information from the association. A reserve analyst will benefit from as much information about the community as possible. The more information the reserve analyst receives the more accurate and detailed the report will be.
Almost any financial information regarding reserves you can give the reserve analyst will be beneficial. Some of the most important pieces of information are:
1. A List of Reserve Items to Analyze
A list of reserve items is the basis for the report. The reserve study preparer has to have an idea of what he is looking for when he performs the site inspection. Additionally, if the association uses the component method to fund reserves, then they need to give the balance for each item.
2. The Latest Balance Sheet
The current balance sheet is essential when performing a reserve study. In fact, it is often useful to have the last 2 balance sheets because then the reserve analyst can compare contributions from one month to another. The balance sheet shows what is actually in the reserve account.
3. This Year’s Current Budget
The current budget is also crucial when preparing a reserve study. The budget will show what the planned reserve contributions are for the fiscal year. It will also show when the association starts and ends its fiscal year. When the reserve analyst has the balance sheet and the budget, he can clearly see what is currently in the reserve account(s) and properly forecast it to the start of the next fiscal year to obtain the starting balance for the next fiscal year.
4. Recent Contracts or Bids
Construction bids and contracts are very valuable to the reserve analyst for several reasons. One is that they take the estimating out of the report. There are many reliable cost data sources (ex: Marshall Swift, RS Means), but any contract will be more accurate because that is what the association actually paid for that service or repair. A second reason is that they help the preparer figure out the useful life. If the last time something was replaced was 9 years ago and it will be replaced within the next year, then it clearly has a 10 year useful life. Another reason is that they help the reserve analyst figure out the current market prices for services/materials and keep their cost database updated.
As you can see, there is some information necessary to get the reserve study process started. However, it is typically information the association is required to keep to fulfill its state reporting requirements. Once the reserve analyst has this information they can start to learn about the association, plan their inspection more appropriately, and put together the framework of the report.