Which of the following best describes the purpose of a reserve study in a community association?

• A. To plan future major replacements and set aside funds accordingly
• B. To determine taxes
• C. To set monthly dues
• D. To assign penalties

Answer: (A)

A reserve study is a long-range financial planning tool for capital replacements in a community association. It inventories major components that will eventually need replacement or major repair, estimates their remaining useful life and the future replacement costs, and uses that information to determine how much money should be set aside now and in the future. The aim is to develop a funding plan that keeps the reserve fund adequate, so when a replacement is due, funds are available and residents aren’t hit with large, surprise assessments. This study guides operating budgets and long-term planning, even though it isn’t used to determine taxes, set monthly operating dues by itself, or assign penalties.