What is a reserve study? The study of what an association's shared components will cost to replace and when, with the funding plan to get there; Nevada requires a new one at least every five years.
A reserve study has two halves. The physical half inventories the common components the association is responsible for (roofs, private streets, pools, painting, elevators, gates, pumps), estimates the useful life each has left and what replacing it will cost. The financial half takes that list, projects the years the money is needed, and produces a funding plan: what the association puts into reserves each month for the money to be there when the roof is.
In Nevada it is not optional. Under NRS 116.31152 the executive board must have a study of the reserves conducted at least once every five years, review the results at least annually, adjust the funding plan as that review requires, and send a summary to the Real Estate Division. The figure everyone quotes from it is percent funded: reserves on hand divided by the reserves the study says should be on hand at that point. Under about 30 percent is the weak end, where a special assessment or a steep dues increase is the common outcome. Between 30 and 70 percent is where most associations sit. Over 70 percent means the big components are largely paid for.
For a buyer here the summary is in the resale package under NRS 116.4109, and it is the page in it to read twice. Percent funded, the components due for replacement in the next five years, and whether the board has been funding the plan or deferring it say more about what the home costs to own than the dues figure on the listing does.
A worked example
A townhome association's study lists $2.1 million of components with the roofs due in six years, and says reserves should stand at $840,000 today. The account holds $310,000, so the association is 37 percent funded. The plan calls for raising the reserve share of dues from $55 to $95 a month. The board raises it to $70, and the rest of the gap turns into a special assessment when the roofs arrive.
Questions people ask
What does percent funded mean on a reserve study?
The reserves an association actually holds as a share of what the study says it should hold at that moment. It is a snapshot of readiness rather than a grade on the community: a fully funded association with worn-out roofs and a 50 percent funded one with new roofs are in different positions than the two numbers suggest.
Who pays for a reserve study?
The association, out of its operating budget, at a cost of a few thousand dollars for a typical community. In Nevada an association above the size NRS 116.31152 names has to use a qualified reserve study specialist rather than preparing it in-house.