A great reserve study results in a funding plan which meets the National Reserve Study Standards. This means that sufficient funding is available when repairs and replacements are needed. The financial responsibility of contributions should be equally divided among owners, at a stable rate over time. The funding plan should also be fiscally responsible. To achieve a funding plan that meets the standards, the reserve study needs the following:
All essential components, with no non-essential components
National Reserve Study Standards provide a guideline for which components to include. This guideline comes in the form of a 4-part test:
- Is a common area asset
- Has a limited useful life
- Has a predictable remaining useful life
- Has a repair or replacement cost above a minimum threshold
This test ensures the study doesn’t include any components which should instead be part of the operating budget. It also ensures no essential components are excluded from the Reserve Study.
Accurate estimation of useful life and repair or replacement costs
Facilitating contact between the reserve study consultant and approved vendors is vital. Vendors can provide specialist opinions on whether to repair or replace deteriorated assets.
It is prudent to provide all documentation of recent works to common asset areas to the consultant. They will need to be aware of the timing, cost, and extent of works in order to provide an accurate analysis.
If there is a board member who has lived at the property since it was built, ensure they are on hand to answer any of the consultant’s questions. Their personal experience with the property can be useful in providing key information.
Ensuring it complies with State regulations
Of course, great reserve studies must comply with any State-specific legal mandates. For example, some states need reserve study professionals to be registered and background checked. Or the mandate could refer to how often reserve studies must be conducted.
Accurate projection of reserve fund end of fiscal year balance
The reserve fund balance is essential in calculating the percentage funded. This is an important figure because it is the overall measure of how the reserve fund is keeping pace with the deterioration of common area assets. A projection of end of fiscal year balance needs a calculation of the fund balance, expected expenses, and projected reserve contributions.
Complete the reserve study at an appropriate time
It’s best to complete the reserve study before the draft budget has been completed. That way it can take into account the monthly reserve contribution recommended by the new reserve study. Ideally, the Reserve Study is undertaken several months before the fiscal year end. Bids for the Reserve Study should be obtained as much as 6 months before fiscal year end. This allows time for adequate revisions. It means the reserve study’s quality or expense will not be compromised.
Select an experienced reserve study consultant
Request a senior member of the company you hire, with years of experience. This will ensure the data the Financial Analysis is based on, is the most accurate it can be. Without accurate data, the Reserve Study will not be sufficient. The professional will only attend site once to identify and assess the components.
Above all, following these steps will ensure the Reserve Study does not favor current owners. The contributions will naturally increase over time as the property deteriorates. But current owners need to make fair contributions that are sustainable.