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NATIONAL RESERVE STUDY STANDARDS

Minimum Contents

The following is a list of the minimum contents to be included in a reserve study:

 

Minimum Disclosures

The following are the minimum disclosures to be included in the reserve study:

 

Levels of Service

There are three (3) basic levels of service that describe the various types of reserve studies generally available.  They are listed from exhaustive to minimal (in work and content) and include:

Level 1 Full/Initial Reserve Study, With Site-Visit/On-Site Review
 
A reserve study in which the following five reserve study tasks are performed-
  • component inventory
  • condition assessment (based upon on-site visual observation)
  • life and valuation estimates
  • fund status
  • funding plan
Level 2 Reserve Study Update, With-Site-Visit/On-Site Review
  
A reserve study update in which the following five reserve study tasks are performed-
  • component inventory ( verification only, not quantification)
  • condition assessment (based upon on-site visual observation)
  • life and valuation estimates
  • fund status
  • funding plan
Level 3 Reserve Study Update, No-Site-Visit/Off-Site Review
  
A reserve study update in which the following three reserve study tasks are performed-
  • life and valuation estimates
  • fund status
  • funding plan

 

Terms and definitions

1)  Component Inventory- The task of selecting and quantifying reserve items.  This task can be accomplished through on-site visual observations, review of association design and organizational documents, review of established association precedents, and discussion with appropriate association representative(s).

2)  Condition Assessment- The task of evaluating the current condition of the item based on observed or reported characteristics and documented in the field report.

3)  Current Cost-  The current years' estimated cost to maintain, replace, repair, or restore a reserve item to its original functional condition.

4)  Fully Funded Balance-    Total Accrued Depreciation.  An indicator against which Reserve Balance can be compared.  The reserve balance that is in direct proportion to the fraction of life "used up" of the current cost.  This number is calculated for each item, and then summed for a total.

5)  Funding Goals- Independent of methodology utilized, the following represent the basic categories of funding plan goals:

  • Baseline Funding-  Maintaining a Reserve Balance above zero.
  • Full Funding-  Maintaining a Reserve Balance at or near a Percent Funded of 100%.
  • Statutory Funding-  Maintaining a specified minimum Reserve Balance and/or minimum Percent Funded as required by local statutes.
  • Threshold Funding-  Establishing and maintaining a minimum Reserve Balance and/or minimum Percent Funded.

6)  Funding Plan-  An association's plan to provide income to the reserve fund to offset anticipated expenditures from that fund.  The following represent the basic methodologies used to fund reserves:

  • Cash-Flow Method-  A method of developing a reserve funding plan where contributions to the reserve fund are designed to offset the variable annual expenditures from the reserve fund.  Different reserve funding plans are tested against the anticipated schedule of reserve expenses until the desired funding goal is achieved.
  • Component Method-  A method of developing a reserve funding plan where the total contribution is based on the sum of contributions for individual items.

7)  Percent Funded- The ratio, at a particular point in time (such as fiscal year end), of the Reserve Balance to the Fully Funded Balance, expressed as a percentage and used as a general indication of reserve strength.

8)  Remaining Life (RL)- The estimated time, in years, that a reserve item can be expected to continue to serve its intended function.   Projects anticipated to occur in the current year have a remaining life of zero.

9)  Reserve Balance- The actual or projected reserve funds available at fiscal year end.

10) Reserve Item (or Component)- The individual line items in the reserve study, developed or updated in the physical analysis that form the building blocks of the reserve study.  They typically are:

  • association responsibility
  • with limited useful life expectancies
  • predictable remaining life expectancies
  • above a minimum threshold cost
  • as required by local codes

11) Useful Life (UL)- Total Useful Life or Depreciable Life.   The estimated time, in years, that a reserve item can be expected to serve its intended function if properly constructed (& maintained) in its present application or installation.

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