Nevada Real Estate Division has a list of reserve study specialists

Q: Our homeowners association will be having a reserve study soon. There is very little useful information about reserve study specialists to be found at the Nevada Ombudsman's office. Is there a list of licensed specialists and their credentials available from the state or is every HOA relegated to a hit-and-miss selection? It is unclear how a specialist determines the cost of any single component and what its lifecycle may be. In addition to material costs, replacements and repairs also include labor costs. What information does the specialist draw upon?

Is there a common material/labor cost database that all specialists must use or is this simply subjective? If specialists maintain their own data, then it seems likely there can be widely divergent reserve study outcomes for an identical property. This can be exacerbated by the fact that HOA community management companies and boards are frequently replaced and the HOA maintenance history is lost. It may be the state needs to provide far more clarity and control over such a critical financial component of our annual budgets.

A: The quick responses are: the Nevada Real Estate Division has a list of registered reserve specialists that is available to the public (NAC 116A.410). There are laws and regulations pertaining to the qualifications of the reserve specialist as well as to the contents and methodology of preparing a reserve study, which can be found in Nevada Revised Statutes 116, NRS 116A, NAC 116 and NAC 116A.

An apology to the reserve specialists, as I summarized a more simple explanation of a reserve study.

A reserve study consists of an inspection of the major components the association is responsible for— its maintenance, repairs, replacement or restoration, such as streets (if owned by the association), fences, walls, vehicular gates, roofs, building exteriors, clubhouses, amenities such as swimming pool, spa, tennis courts, exercise equipment, etc. The study lists these individual components and projects their useful lives. The study uses maintenance and cost information from various published construction guides that allow a reserve specialist to determine this information as well as to the potential replacement costs.

Mathematically (compounding and discounting), the reserve specialist determines at what point, as an example, the roofs should be replaced. Let's assume in 10 years. If the roofs were to be replaced now, what would it cost? The specialist then projects an inflation rate of what the roofs would cost in 10 years. Let's assume in 10 years, the cost would be $100,000. The specialist determines how much would an association have to fund each year in a reserve account earning a projected interest for each of the 10 years. At 2 percent compounded interest for 10 years, the association would need to fund the roof reserves at $753.47 a month in order to have $100,000 with which to replace the roofs.

There are a number of sections in NRS 116, NAC 116 and NAC 116A which discuss not only reserve studies but also reserve study specialist. NAC 116.430 states the following information that must be included in the reserve study as disclosures: 1. background, training, qualifications and references that would qualify the person to conduct or assist in the preparation of the reserve study; 2. any relationship which could result in actual or potential conflict of interest; 3. is bonded and or has professional liability insurance.

NAC 116A.420 lists additional qualifications such as the ability to evaluate the items on the component inventory with regard to normal and accelerated deterioration, deferred maintenance and remaining useful life, and the current cost to repair or replace. The specialist must be able to perform financial analysis. The specialist must be able to review improvement plans, specifications, maintenance histories, recorded plats and association governing documents. The ability to gather and analyze financial data including the monthly assessments per unit, current balance of the reserves, anticipated interest rates, anticipated inflation rates and maximum increases in reserves.

NAC 116.425 lists the contents of a reserve study (this regulation is basically a recap of NRS 116.31152 and NRS 116.615). A reserve study must include: 1. a copy of the component inventory from the previous study if such was provided by the association to the reserve specialist; 2. the 30-year schedule that shows the projected increases in assessments needed in any given year to provide adequately funded reserves; 3. projected inflation and estimated interest income from the reserve fund; 4. projected initial balance and projected ending balance of the reserve fund; 5. the number of units in the association; 6. a tabular statement showing the remaining useful life of each major component from the time of each component's initial installation; 7. the methods used in carrying out the funding plan such as cash flow, full funding, threshold funding and baseline funding.

For more information, review the definitions of these funding plans in their reserve study, and if you do not have a copy you can obtain one from the association.

NAC 116.430 is one of the regulations that pertains to required disclosures in preparing the reserve study. The method for determining the common area components is based on the following: 1. an actual field inspection of the common elements with representative sampling; 2. an inventory of material information; 3. a previous reserve study and the date of that study; 4. industry sources for determining the life of major components and the cost of repairing, replacing or restoring them; 5. any guarantees, express or implied that are given with the predictions for the cost or life expectancy of any of the major components; 6. the source of the information regarding the initial reserve fund balance presented in the reserve study; 7.whether a special assessment is anticipated during the time of the contracted reserve study; 8. a statement that is to be prominently displayed that in essence states the reserve study is not intended to be used as an audit, forensic study or background check of historical records, etc.; 9. material issues that if not disclosed would cause the condition of the association to be misrepresented; 10. for any updated reserve studies, again a statement prominently displayed which substantially reads that the quantities of major components as reported in the previous reserve studies are deemed to be accurate and reliable and the current reserve study relies upon the validity of the previous ones.

— Barbara Holland is a certified property manager, broker and supervisory certified association manager. Questions may be sent to holland744o@gmail.com.