Definitions Index
Abbreviations
ea = each FY = fiscal year lf or lin ft = lineal feet
ls = lump sum RL = remaining life sf or sq ft = square feet sy or sq yd= square yard UL = useful life 100 sq ft = 1 square) % = percent
1. Allocation %
A percentage of the total Reserve Allocation. See - Calculations Appendix
2. Allocation Increase Rate
Expressed as a percentage rate that reflects the increase of a given year’s Reserve Allocation over the previous year’s Reserve Allocation and utilized only in the Cash Flow Analysis.
3. Base Year
The year in which the governing documents were recorded and/or the buildings constructed (average year may be used for phases built over a period) and utilized to determine the approximate complex age. This parameter is provided for information only.
4. Common Interest Development (CID)
Defined by shared property and restrictions in the deed on use of the property. A CID is governed by a mandatory Association of homeowners which administers the property and enforces its restrictions. The following are two typical CID subdivision types:
> Condominium- In general, the recorded owner has title to the unit (or airspace). They are typically responsible for the interior of their individual unit/garage, all utilities that service their unit and any exclusive use common area associated with their unit.
> Planned Development- In general, the recorded owner has title to the lot. They are typically responsible for the maintenance and repair of any structure or improvement located on their respective lot.
*Note- CIDs & subdivision types are general and may not apply or may vary, based on your local.
5. Component Inventory
The task of selecting and quantifying reserve items. This task can be accomplished through on-site visual observations, review of association design and organizational documents, review of established association precedents, and discussion with appropriate association representatives.
6. Condition Assessment
The task of evaluating the current condition of the component based on observed or reported characteristics and normal documented in the field report for a Level 1 or Level 2 Reserve Study.
7. Contingency Rate
Expressed as a percentage rate that reflects a factor added to the unit cost to prepare for an event that is liable to occur, but not with certainty.
8. Current Cost
The current fiscal year’s estimated cost to maintain, replace, repair, or restore a reserve component to its original functional condition. Sources utilized to obtain estimates may include: the association, its contractors, other contractors, specialists and independent consultants, the State department of Real Estate (or other state department as applicable), construction pricing and estimating manuals, and the preparer’s own experience and/or database of costs formulated in the preparation of other reserve study reports. See - Calculations Appendix.
9. Disbursement / Expenditures
The funds expected to be paid or expended from the Reserve Balance.
10. Extended Cost
See - Calculations Appendix.
11. Fiscal Year (FY)
A twelve-month period for which an organization plans the use of its funds. There are two distinct types:
> Calendar Fiscal Year (ends December 31)
> Non-Calendar Fiscal Year (does not end December
12. Full Funded Balance (FFB)
Total Accrued Depreciation. An indicator against which the FY Start Balance can be compared. The balance that is in direct proportion to the fraction of life “used up” of the cost. See - Calculations Appendix.
13. Funding Goal
Independent of methodology utilized, the following represents the basic categories of funding plan goals:
> Baseline Funding- Maintaining a Net Reserve Balance above zero for length of the study.
> Full Funding- Maintaining a Reserve Balance at or near Percent Funded of 100%.
> Statutory Funding- Maintaining a specified Reserve Balance/Percent Funded per statute.
> Threshold Funding- Establishing and maintaining a set predetermined Reserve Balance or Percent Funded.
14. Funding Method (or Funding Plan)
An Association’s plan to provide income to the reserve fund to offset expected disbursements from that fund. The following represents two (2) basic methodologies used to fund reserves:
> Cash Flow Method- A method of developing a reserve funding plan where allocations to the reserve fund are designed to offset the variable annual expenditures from the reserve fund. Different reserve funding plans are tested against the anticipated schedule of reserve expenses until the desired funding goal is achieved.
> Component Method - The component method develops a reserve-funding plan where the total contribution is based on the sum of contributions for individual components. The component method is the more conservative (typically higher reserve account balance) of the two funding options and assures that the association will achieve and maintain an ideal level of reserves over time. This method also allows for computations on individual components in the analysis. However, this method has also limitations with respects to variations in actual useful life of components and is much more time intensive to accurately follow this funding strategy.
15. Funding Plan
The combined Funding Method & Funding Goal.
16. FY End Balance (same as next FY Start Balance)
The balance in reserves at end of applicable fiscal year. See - Calculations Appendix.
17. FY Start Balance (same as prior year FY End Balance)
The balance in reserves at start of applicable fiscal year.
18. Inflation Rate
Expressed as a percentage rate that reflects the increase of this year’s costs over the previous year’s costs. Also known as a ‘cost increase factor’.
19. Interest Earned
The annual earning of reserve funds that have been deposited into certificates of deposit (CDs), money market accounts or other investment vehicles. See - Calculations Appendix.
20. Interest Rate
The ratio of the gain received from an investment and the investment over a period (usually one year), prior to any federal or state-imposed taxes.
21. Interest Rate (net effective)
The ratio of the gain received from an investment and the investment over a period (usually one year), after any federal or state-imposed taxes.
22. Levels of Service
Level 1 Reserve Study (Full or Comprehensive)- A Reserve Study in which the following five Reserve Study tasks are performed:
> Component Inventory
> Condition Assessment (based upon on-site visual observations)
> Life and Valuation Estimates
> Fund Status
> Funding Plan
Level 2 Reserve Study (Update, With-Site-Visit/On-Site Review)- A Reserve Study update in which the following five tasks are performed:
> Component Inventory (from prior study)
> Condition Assessment (based upon on-site visual observations)
> Life and Valuation Estimates
> Fund Status
> Funding Plan
*Note- Updates are reliant on the validity of prior Reserve Studies.
Level 3 Reserve Study (Update, No-Site-Visit/Off-Site Review)- A Reserve Study update with no on-site visual observations in which the following three tasks are performed:
> Component Inventory (from prior study)
> Condition Assessment (based upon on-site visual observations)
> Life and Valuation Estimates
> Fund Status
> Funding Plan
*Note- Updates are reliant on the validity of prior Reserve Studies.
23. Percent Funded
A comparison of the Fully Funded Balance (ideal balance) to the Fiscal Year Actual Start Balance expressed as a percentage and used to provide a ‘general indication’ of reserve strength. See Calculations Appendix.
24. Quantity
The number or amount of a reserve component or sub-component.
25. Remaining Life (RL)
The estimated time, in years, that a reserve component can be expected to continue to serve its intended function.
26. Replacement %
A percentage of the total replacement for a reserve component or sub-component. This parameter is normally 100%.
27. Reserve Allocation
The amount to be annually budgeted towards reserves based on a Funding Plan.
28. Reserve Component (or sub-component)
The individual line items in the reserve study, developed or updated in the physical analysis that form the building blocks of the reserve study. They typically are:
> an association responsibility
> with limited useful life expectancy
> predictable remaining useful life expectancy
> above a minimum threshold cost
> as required by statutes.
29. Restoration
Defined as to bring back to an unimpaired or improved condition. General types follow:
> Building- In general, funding utilized to defray the cost (in whole or part) of major building components that are not necessarily included as line items and may include termite treatment.
> Irrigation System- In general, funding utilized to defray the cost (in whole or part) of sectional irrigation system areas including modernization to improve water management.
> Landscape- In general, funding utilized to defray the cost (in whole or part) of sectional landscape areas including modernization to improve water conservation & drainage.
30. Risk Factor (Percent Funded)
The associated risk of the availability of reserves to fund expenditures by interpreting the Percent Funded parameter as follows:
> 70% and above - LOW
> 30% to 70% - MODERATE
> 30% and below - HIGH
*High risk is associated with a higher risk for reliance on special assessments, loans and litigation.
31. Unit Cost
The current fiscal year’s estimated cost to maintain, replace, repair, or restore an individual “unit of measure” of a reserve component or sub-component to its original functional condition.
32. Unit of Measure
A system of units used in measuring a reserve component or sub-component (i.e., each, lineal feet, square feet, etc.).
33. Useful Life (UL)
Total Useful Life or Depreciable Life. The estimated time, in years, that a reserve item can be expected to serve its intended function if properly constructed and maintained in its present application or installation.
Disclosures Index
The below disclosures are in accordance with reserve study standards developed by CAI, APRA and statutory requirements.
1. Items Beyond the Scope of this Report
This reserve study has been conducted to outline a financial plan for the proper and adequate budgeting of the Association component repair and/or replacement. This report should not be utilized for any other purpose and should not be considered or deemed appropriate or reliable for, but not limited to, any of the following:
> Building or land appraisals for any purpose
> State or local zoning ordinance violations
> Building code violations
> Soils conditions, soils contamination or geological stability of site
> Engineering analysis or structural stability of site
> Air quality, asbestos, electromagnetic radiation, formaldehyde, lead, mercury, or radon
> Water quality or other environmental hazards
> Invasions by termites and any or all other destroying organisms or insects
> Damage or destruction due to pests, birds, bats or animals to buildings or site
> Adequacy or efficiency of any system or component on site
> Specifically excluded reserve items
> Septic systems and septic tanks
> Buried or concealed portions of swing pools, pool liners, Jacuzzis/spas or similar items
> Items concealed by signs, carpets or other things
> Missing or omitted information supplied by the Association for the purposes of reserve study preparation
> Hidden improvements such as sewer lines, water lines, or other buried or concealed items
2. Qualifications
We are a professional business in the market to prepare Reserve Studies. Our Reserve Analysts’ are either designated with or working towards the RS and/or PRA designations which are given by the two leading industry organizations which require peer review, continuing education and provide resources to stay on top of industry trends.
3. Invasive Testing
Estimated life expectancy and life cycles are based upon conditions that were readily accessible and visible at the time of the site visit. We did not destroy any landscape work, building walls, or perform any methods of intrusive/invasive testing during the site visit. In these cases, information may have been obtained by contacting the contractor or vendor that has worked on the property. The physical analysis performed during this site visit is not intended to be exhaustive in nature and may include representative sampling.
4. Conflicts of Interests
As the preparer of this reserve study; the Reserve Analyst certifies that we do not have any vested interests, financial interests, or other interests that would cause a conflict of interest in the preparation of this reserve study.
5. Representative Sampling
This study and report is based on observations of the visible and apparent conditions of a reasonable representative sampling of the property’s elements at the time of inspection. Although due diligence was performed during the inspection phase, we make no representations regarding latent or concealed defects that may exist. The inspection did not constitute any invasive investigations and was not intended to determine whether applicable building components, systems, or equipment are adequate or in compliance with any specific or commonly accepted design requirement, building code, or specification. Such tasks as material testing, engineering analysis, destructive testing, or performance testing of building systems, components, or equipment are not considered as part of the scope of work, nor are they considered by the reserve study industry standard.
6. Reliance on Client & Vendor Data Provided
Information provided to the preparer of a reserve study by an official representative of the association regarding financial, historical, physical, quantitative or reserve project issues will be deemed reliable by the preparer. A reserve study will reflect information provided to the preparer of the reserve study. The total of actual or projected reserves required as presented in the reserve study is based upon information provided that was not audited. A reserve study is not intended to be used to perform an audit, an analysis of quality, a forensic study or a background check of historical records. A site visit conducted in conjunction with a reserve study should not be deemed to be a project audit or quality inspection. The results of this study are based on the independent opinion of the preparer and their experience and research during their career in preparing Reserve Studies. In addition, the opinions of experts on certain components have been gathered through research within their industry and with client’s actual vendors. There is no implied warrantee or guarantee regarding our life and cost estimates/predictions. There is no implied warrantee or guarantee in any of our work product. Our results and findings will vary from another preparer’s results and findings. A Reserve Study is necessarily a work in progress and subsequent Reserve Studies will vary from prior studies.
7. Update to Prior Reserve Studies
Level II Studies: Quantities of major components as reported in previous reserve studies are deemed to be accurate and reliable. The reserve study relies upon the validity of previous reserve studies. Level III Studies: In addition to the above we have not visited the property when completing a Level III “No Site Visit” study. Therefore, we have not verified the current condition of the common area components. It is assumed all prior study component information related to quantities, condition assessments, useful life and remaining useful life are accurate.
8. Assumption Regarding Ongoing Maintenance
The projected life expectancy of the major components and the funding needs of the reserves of the association are based upon the association performing appropriate routine and preventative maintenance for each major component. Failure to perform such maintenance can negatively impact the remaining useful life of the major components.
9. Assumptions Regarding Defect in Design or Construction
This Reserve Study assumes that all construction assemblies and components identified herein are built properly and are free from defects in materials and/or workmanship. Defects can lead to reduced useful life and premature failure. It was not the intent of this Reserve Study to inspect for or to identify defects. If defects exist, repairs should be made so that the construction components and assemblies at the community reach their full and expected useful lives. We have assumed all components have been properly built and will reach normal, typical life expectancy. In general, a reserve study is not intended to identify or fund for construction defects. We did not and will not look for or identify construction defects during our site visit.
10. Basis of Cost Estimates
Pricing used for the repair or replacement costs indicated in this report are derived from a variety of sources, e.g., recent contractor bids received by subject property HOA or prior clients, construction product vendor catalogs, internet, or national construction cost estimating publishers (RS Means / Marshall & Swift). The material and labor pricing provided are estimates and have been augmented, as necessary, to account for specific site conditions (i.e. material handling, scaffolding, etc.). The total expenses represent a useful guideline whereby reserve funds can be accumulated for future repairs and replacements. The estimated repair and replacement expenses, unless otherwise noted, do not include allowances for architectural, engineering, or permitting fees.
11. Limitations on Report Use
A reserve study is not intended to be used to perform an audit, an analysis of quality, a forensic study or a background check of historical records. A site visit conducted in conjunction with a reserve study should not be deemed to be a project audit or quality inspection. This Reserve Study is provided as an aid for planning purposes and not as an accounting tool. Since it deals with events yet to take place, there is no assurance that the results enumerated within it will, in fact, occur as described. Additionally, other unanticipated expenses may arise that are not included within this reserve study. This reserve study should be reviewed carefully it may not include all common and limited common element components that will require major maintenance, repair, or replacement in future years, and may not include regular contributions to a reserve account for the cost of such maintenance, repair, or replacement. The failure to include a component in a reserve study, or to provide contributions to a reserve account for a component, may, under some circumstances, require you to pay on demand as a special assessment your share of common expenses for the cost of major maintenance, repair, or replacement of a reserve component.
12. State Specific Disclosures
Washington State
RCW 64.34.382 & WA State RCW 64.38.070 & 64.90.550
This reserve study meets minimum standards as required per WA State RCW requirements outlined in the Washington Condominium Act, the Homeowners’ Association Act, and the Washington Uniform Common Interest Ownership Act
This reserve study should be reviewed carefully. It may not include all common and limited common element components that will require major maintenance, repair, or replacement in future years, and may not include regular contributions to a reserve account for the cost of such maintenance, repair, or replacement. The failure to include a component in a reserve study, or to provide contributions to a reserve account for a component, may, under some circumstances, require you to pay on demand as a special assessment your share of common expenses for the cost of major maintenance, repair, or replacement of a reserve component.
Washington State
Disclosures Required by RCW 64.90.550.
This Reserve Study meets all requirements of the Washington Uniform Common Interest Ownership Act.
a) This Reserve Study was prepared with the assistance of a reserve study professional and that professional was independent;
b) This Reserve Study includes all information required by RCW 64.90.550 Reserve Study – Contents; and
c) This reserve study should be reviewed carefully. It may not include all common and limited common element components that will require major maintenance, repair, or replacement in future years, and may not include regular contributions to a reserve account for the cost of such maintenance, repair, or replacement. The failure to include a component in a reserve study, or to provide contributions to a reserve account for a component, may, under some circumstances, require the association to (1) defer major maintenance, repair, or replacement, (2) increase future reserve contributions, (3) borrow funds to pay for major maintenance, repair, or replacement, or (4) impose special assessments for the cost of major maintenance, repair, or replacement.
Calculations Index
1. Allocation % =
Reserve Allocation (Component Method) / Total Reserve Allocation (Component Method) x 100
2. Current Cost =
Extended Cost (for a component without subcomponents)
i. -or-
Sum of subcomponent Extended Costs (for a component with subcomponents)
3. Extended Cost =
Quantity x Unit Cost x Replacement % x (1+Contingency Rate)
4. FY End Balance (same as Next FY Start Balance) =
Initial or current fiscal year-
Current Reserve Balance + Interest Earned + Reserve Allocation to Fund + Special Assessment to
Fund + Funds Due from Operating - Approved Funds to Disburse - Disbursements
Subsequent fiscal years-
FY Start Balance + Interest Earned + (Reserve Allocation (from previous year) x
(1 + Reserve Allocation Rate) - Disbursements
5. Interest Earned=
Initial fiscal year-
Current Reserve Balance x (Interest Rate
(net effective)/12 x
Number of funding months remaining in current fiscal year)
Subsequent fiscal years-
FY Start Balance x Interest Rate (net effective)
Accumulation Function and Amount Function
https://www.reservedataanalyst.com/int
6. Percent Funded =
(Reserve Account Balance / Fully Funded Balance) x 100
7. Reserve Allocation (Component Method) =
Current Cost / Useful Life
8. Fully Funded Balance (FFB) =
Basic Fully Funded
Fully Funded = Age/Useful Life * Cost
Note that “Age” is adjusted for each year of the study (e.g. one year later also equates to an Age which is one year greater). We do not use the age from the first year of the study for future FFB calculations as this would not appropriately address the deterioration of the component over time (i.e. when providing future projections one can make a valid assumption that a component will deteriorate by one year if providing projections for one year later).
Cost (component project cost) is inflated for each year based on an annual inflation rate (compounding) given in this reserve study (e.g., a paint project “cost” may be $1,000 in Year 1 of the study but will have a “cost” of $1,030 in Year 2 of the study, and $1,060.90 in Year 3 of the study, when utilizing an annual 3% inflation rate). Note that we do not use the "cost" (current project cost) from the first year of the study for future year's FFB calculations as this approach does not consider the impact of inflation on the project cost and will usually result in a significantly underfunded reserve account over time. This is also known as the Inflation Adjusted Cost Method
**Unless specifically noted otherwise we have utilized the above FFB formula and methodology in this reserve study.
Community Association Institute FFB Formula
The Community Association Institute published the below FFB formula to account for inflation and interest earned on deposit ("present value" is based on the current cost only - with no inflation of the project cost) the writers of 'RESERVE FUNDS: How & Why community Associations Invest Assets' published:
More mathematical information can be found at the following link: www.reservedataanalyst.com/math