La Jolla · Buyer and seller guides · Condos

How to read a condo reserve study and budget in La Jolla

Short answer: A reserve study is a report that looks at the big shared parts of a building, like the roof, and plans how the association will save for their repair. In California, the law sets rules for these studies and for the yearly budget report owners receive. Reading both, before you buy, helps you see what may be coming.

When you buy a condo or a home in an association, you’re also buying into a shared budget. The roof, the elevator and the pipes belong to everyone, and someone has to plan for them.

That plan lives in two papers: the reserve study and the yearly budget report. Here’s how I read them with buyers, in plain words.

I’m Weston Clark, Founding Member of the Dickinson-Clark Team at Compass. I help buyers and sellers of condos and association homes in La Jolla and coastal San Diego read the papers that come with them. You can talk about fees with Weston directly. This form does not give a commission quote.

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Related: Homeowners associations · Condos · Coastal buyer checklist · Home inspection · Guides · La Jolla

What a reserve study is

Reserves are the savings an association sets aside for big repairs. A reserve study is the report that plans those savings. It lists the major shared parts, guesses how long each will last, estimates repair costs, and lays out a plan to pay for them.

If you live in an HOA (homeowners association), part of your monthly dues usually goes into those reserves. My homeowners association guide covers the basics.

What California law says about reserve studies

The rule is Civil Code section 5550. In the law’s words: “At least once every three years, the board shall cause to be conducted a reasonably competent and diligent visual inspection of the accessible areas of the major components that the association is obligated to repair, replace, restore, or maintain” The sentence goes on to tie this to a study of the association’s reserves.

In plain words, the board has to have someone look over the big shared parts the association must care for, and use that to plan its savings. The law applies this rule when those parts are a large share of the budget. The board also has to review the study each year and adjust the plan.

The same section says the study must include a funding plan, and that shared gas, water and power lines count when the association is in charge of them.

The yearly budget report

Each year, the association sends owners a budget report. Civil Code section 5300 lists what it has to include, like a summary of the reserves, a summary of the funding plan, a note on whether a special assessment (an extra charge beyond regular dues) may be needed, and a summary of the association’s insurance.

One line I always point out to buyers: “The summary shall include notice to members that the full reserve study plan is available upon request, and the association shall provide the full reserve plan to any member upon request.” In plain words, owners can ask for the full reserve plan, not just the summary, and the association has to provide it.

What I look for when I read them

• Is the study current? I check the date and whether the board has updated it.
• Is the plan being followed? I compare the plan to what the budget actually sets aside.
• Any extra charges coming? I read the note on special assessments closely.
• Any repairs put off? The budget report has to say whether the board decided to delay big repairs.
• What does the insurance cover? I read the insurance summary, including earthquake and flood. See my earthquake insurance guide.
• What’s in the meeting notes? Board meeting notes often show what’s on owners’ minds.

Near the coast, salt air is hard on railings, balconies and concrete. I look for how the study plans for that. And an inspection of the unit still matters. See my home inspection guide.

If you’re selling a condo

Buyers will ask for these papers early. I’d gather the reserve study, the latest budget report, the rules and recent meeting notes before we list. That way buyers can read them right away.

These papers are part of your disclosures, the information sellers share with buyers. My condo guide and disclosures guide explain more.

Questions to ask before you buy

• When was the last reserve study done, and when is the next one?
• Has the board talked about a special assessment?
• Are any big repairs planned or put off?
• What does the association’s insurance cover, and what’s up to each owner?
• Can I see the full reserve plan, not just the summary?

I don’t judge whether an association is good or bad. I help you see what the papers say, so you can decide. This guide is general information, not legal or financial advice. For that, talk with a real estate lawyer or an accountant.

More on sandiego.homes

• Homeowners associations: rules, dues and papers
• Condos: buying and selling a condo
• Disclosures: what sellers share with buyers
• Coastal buyer checklist: what I check before you buy near the coast
• Earthquake insurance: how that policy works
• Home inspection: what an inspector checks
• Guides · La Jolla

Ask Weston to read the association papers with you

Tell me about the condo or home you’re looking at. I’ll help you read the reserve study and budget, and list the questions to ask.

Or call (858) 997-8998 · weston@sandiego.homes · Search on Compass

Free seller tools: What is my home worth? · What would I take home? · Real estate words in plain English

Have another question? Quick answers to common questions

Sources

• California Civil Code § 5550 (official text)
• California Civil Code § 5300 (official text)
• CA DRE — Disclosures in Real Property Transactions (RE 6)
• California Department of Insurance — Residential insurance guides