BUYERS GUIDE: HOW DO YOU DETERMINE WHAT COMPONENTS TO INCLUDE IN A RESERVE STUDY?
Video transcription: So as we embark on a reserve study we need to make sure that we create an accurate and catered component list for your community. We're often asked by Board Members; Where do you come up with this common area component list? Well what we do is follow National Reserve Study Standards which was created in 1998 by the Community Associations Institute and there's a four part test to it.
So that four part test is; Number one, the component needs to have a limited useful life. The component also has to have a predictable remaining useful life. Number three, the component much be the HOA's responsibility. And number four, it needs to be above a threshold amount which is set by the Client; it could be $500 or it could be $2,500 [examples]. A larger community will typically have a higher threshold. Lower costs items are usually paid from the operating account. So if it meets that four part test it will most likely be in the reserve study.
There's other items like the governing documents how they're interpreted by the Board, those play into it as well. But from the onset what we do is look at each component [and ask] does it meet this four part test and then we include it [if it does].
Now other items like mowing of the lawn are done on an annual basis [paid for] and typically are under an annual contract so they're paid from an operating account, not from the reserve account. So that's how the basics of how we compile our component list; we follow this four part test.
You can see a lot more information about this on our website https://www.rdanorthwest.com . Feel free to go on there, browse around, read and send us some questions. If you have any concerns or questions regarding how we might be able to help your community or what kind of common areas are in your community that may be in question; please ask us. We'd be happy to answer any questions you may have. Thank you so much.
Additional resources: Component Analysis Slideshare / Determining Useful Life & Cost / Four Part Test Infographic
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