What Makes a Good Reserve Study?

Achieving an effective reserve study is a goal shared by many. But what exactly does it entail? Here’s a comprehensive guide:

  1. Complete Reserve Component List: A good reserve study should include all the necessary components without any omissions or items that should be covered by the operating budget. Ensure accurate estimates of Useful Life (UL) and Remaining Useful Life (RUL) as well as Repair/Replacement costs ($). Additionally, project the starting Reserve balance ($).

  2. Solid Funding Plan: A well-crafted funding plan is crucial for timely repair and replacement of all components listed. It should provide adequate resources and account for the projected expenses.

  3. Component Selection: Adhere to National Reserve Study Standards to evaluate each component’s eligibility for inclusion in the list. Ensure that every component is a common area maintenance responsibility, has a limited Useful Life, predictable Remaining Useful Life, and repair or replacement costs above a minimum threshold of significance.

  4. Independent Reserve Study: If you’ve had a Reserve Study conducted by an independent and credentialed Reserve professional (RS or Reserve Specialist), your Reserve Component List should only require minor adjustments annually. Review the list based on the National Reserve Study Standards’ 4-part test to ensure accuracy.

  5. Incorporate Completed Projects: Acknowledge any recent Reserve projects completed by the Association in your Reserve Study. Maintain a “Reserve Projects” folder to store receipts, proposals, and other relevant information. This will ensure accurate estimation of Useful Life, Remaining Useful Life, and current Repair/Replacement costs.

  6. Vendor Information: Share a list of the Association’s vendors with your Reserve Specialist. These vendors can provide valuable insights into the condition and pricing of various components. For instance, a pool vendor might inform about the need to replace a malfunctioning filter, while an asphalt vendor can provide information about the state of the current seal-coat and future resurfacing requirements.

  7. End-of-Year Reserve Fund Balance: Accurately estimate your Reserve Balance at the end of the year by involving the Board and management. Consider actual balance, projected expenses, outstanding payments, and expected Reserve transfers. This computation impacts the Percent Funded calculation and ongoing Reserve funding requirement.

  8. Timely Completion: Plan the Reserve Study process well in advance to ensure sufficient time for review, revisions, and budget incorporation. Ideally, bids for the Reserve Study should be obtained in early summer, with completion by September or October. This allows for a thorough review before approving the budget.

  9. Funding Plans: A great Funding Plan should meet National Reserve Study Standards, which emphasize adequate funds when needed, budget stability, fair distribution of Reserve funding among owners, and fiscal responsibility. It should offset ongoing deterioration, avoiding burdensome assessments on future owners while not under-reserving in the short term.

  10. Ongoing Refinements: A “great” Reserve Study is a result of continuous refinements. Regular updates ensure the study accurately reflects the association’s current physical and financial state, providing reliable budget guidance to the Board and management.

By following these guidelines, your reserve study will be comprehensive, accurate, and beneficial for your association’s financial planning. Remember, the involvement of an experienced Reserve Study professional, the Association Board, and management is crucial to its success.