A Reserve Fund balance that is considered sufficient for one property may not be enough for another. However, when a property’s actual reserves are compared to its calculated reserve requirements, a relative measurement scale known as “Percent Funded” is established. This measure of the relative reserve fund strength is now part of the National Reserve Study Standards and is independent of the funding method used (e.g., cash flow, straight line).

Percent (%) Funded = Reserve Fund Balance (actual) / Fully Funded Balance (computed)

The Fully Funded Balance (FFB) is calculated by multiplying the current replacement cost of each component by the fraction of its life that has been used up and adding them all together.

Percent Funded = 100% (i.e., optimal) when the Reserve Fund Balance (actual) is equal to the Fully Funded Balance (computed).

The governing documents of most association-governed communities require the Board of Directors to regularly allocate an “appropriate” amount of money to offset the ongoing deterioration of the common areas. However, physical assets deteriorate over time, and most of the “major” components of a property will require repair or replacement in a predictable manner, regardless of property type. A trustworthy and current Reserve Study enables advanced preparation for these inevitable expenses, distributing reserve contributions evenly over time, rather than relying on external funding sources such as special assessments, capital campaigns, or loans.

In level 3 Reserve study (modify with no site visit) the following three tasks will be done: Creating funding plan, making funding status, and estimation of life and valuation.

Note: The validity of previous Reserve Studies is essential for updates.

National Reserve Study Standards are a set of guidelines established by the Community Associations Institute (CAI) in 1998. These standards seek to:

1. Provide consistent terminology.

2. Standardize the levels of Reserve Study services.

3. Make a set of common disclosures within the Reserve Study.

4. Establish a Reserve Specialist (RS) credential program.

Every Reserve Study, in accordance with the National Reserve Study Standards, provides three critical pieces of information that are valuable for both annual budget planning and disclosure purposes:

1. Component List (also known as what you are reserving for)

2. Percent Funded (also known as the Strength of the Reserve Fund)

3. Recommended Funding Plan

During a property inspection, which occurs after reviewing documents that establish and identify common area assets, the estimated life expectancies and life cycles of common area components are determined based on readily accessible and visible conditions, without any intrusive or destructive investigation. Contacting the component’s contractor or vendor can provide additional information if required.

The cost of a Reserve Study can vary depending on various factors such as the size and complexity of the property, the level of detail required, and the qualifications of the professional performing the study. However, the cost of a Reserve Study is typically a small fraction of the long-term maintenance and replacement costs that it helps property owners avoid.

A Reserve Study provides several benefits to property owners and community associations, including:

– A long-term maintenance plan that helps prevent unexpected repair and replacement costs.
– A funding plan that ensures sufficient funds are available to pay for future maintenance and replacement needs.
– A clear understanding of the condition and remaining useful life of common area components.
– Improved decision-making and transparency for property owners and community associations.
– Increased property values through well-maintained common areas and components.

Conducting a reserve study is essential for protecting your property value, achieving fairness in member contributions, maintaining and improving common areas, and being financially prepared for upcoming expenses.

Common area components are the physical assets that are owned and maintained by a property owner or community association and are used by all owners or tenants. Examples of common area components include roofs, building facades, parking lots, swimming pools, elevators, and landscaping.