A reserve study provides a current estimate of the costs of repairing and replacing major common area components (such as roofs or pavement) over the long term. Ideally, all major repair and replacement costs will be covered by funds set aside by the association as reserves so that funds are there when needed.

This requires:

	examination of the association’s repair and replacement obligations;
	determination of costs and timing of replacement; and
	determination of the availability of necessary (reserve) cash resources.

Because the board has a fiduciary duty to manage association funds and property, a replacement reserve budget is very important. Not only does this information supplement the annual perating budget in providing owners with financial information; the reserve study is also an important management information tool as the association strives to balance and optimize long-term property values and costs for the membership. For association members, reserve planning helps assure property values by protecting against declining property values due to deferred maintenance and inability to keep up with the aging of components.

A good reserve study shows owners and potential buyers a more accurate and complete picture of the association’s financial strength and market value. The reserve study should disclose to buyers,lenders, and others the manner in which management of the association (i.e., the board and outside management, if any) is making provisions for non-annual maintenance requirements. Preparing a reserve study calls for explicit association decisions on how to provide for long-term funding, and on the extent to which the association will set aside funds on a regular basis for non-annual maintenance requirements. A good reserve study may also function as a maintenance planning tool for the association.