Which Physical Assets are Funded by Reserves?
There is a national-standard four-part test to determine which expenses should appear in your Reserve Component List. First, it must be a common area maintenance responsibility. Second, the component must have a limited life. Third, the remaining life must be predictable (or it by definition is a surprise which cannot be accurately anticipated). Fourth, the component must be above a minimum threshold cost (often between .5% and 1% of an association's total budget). This limits Reserve
Components to major, predictable expenses. Within this framework, it is inappropriate to include lifetime components, unpredictable expenses (such as damage due to fire, flood, or earthquake), and expenses more appropriately handled from the Operational Budget or as an insured loss. How do we establish Useful Life and Remaining Useful Life estimates? 1) Visual Inspection (observed wear and age) 2) Association Reserves database of experience 3) Client History (install dates & previous life cycle information) 4) Vendor Evaluation and Recommendation How do we establish Current Repair/Replacement Cost Estimates?
In this order...
1) Actual client cost history, or current proposals 2) Comparison to Association Reserves database of work done at similar associations 3) Vendor Recommendations 4) Reliable National Industry cost estimating guidebooks
Association Reserves, #6510-0
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7/29/2022
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