Reserve studies are a useful capital planning tool for any association, but in order for your reserve study to work best for your association, it’s crucial that you choose and implement the correct reserve study service. There are four levels of reserve studies as defined by the Community Associations Institute. It’s important to understand the scope of each level of reserve study and how they can contribute to your association’s long-term success.
Level I Reserve Study
A level I reserve study, commonly referred to as a full reserve study, is the most comprehensive study available to associations. Including development of a component inventory, condition assessments, and life and valuation estimates, full reserve studies require the most time and effort to complete. An on-site visual inspection of all association-maintained components, along with an in-depth financial analysis of reserve funds, work hand-in-hand to formulate a capital plan. The status of your association’s reserve funds will be analyzed against the need for near and long-term repairs and replacements, and a funding plan will be laid out.
If your association has never conducted a reserve study, or substantial time has passed since your last study was complete, your association will most likely require a level I reserve study.
Level II Reserve Study
A level II reserve study is an update of a prior study that includes a site visit. A level II study is recommended at least every three years, as well as before and after any major capital projects. Additionally, some states require level II reserve studies on a predefined basis. In a level II study, the component inventory, quantities, and measurements are reassessed and updated as needed.
This service also includes a detailed condition assessment like that of the level I reserve study as well as updated life and valuation estimates. The financial analysis will take into consideration the current fund status and updates the reserve fund plan accordingly. Level II reserve study reports look and operate in the same manner as a level one reserve study report, which includes component-specific details for each common asset.
Level III Reserve Study
A level III reserve study is an update of a previous level I or level II study. However, this service does not include a site visit and is not always a viable option if substantial time has passed since the last site visit. The component inventory, quantities, and measurements reflect that of the latest level I or level II study. Changes in property conditions and recent projects are reported by the association in lieu of being assessed during a site inspection. Valuation and cost estimates are re-evaluated for each reserve component, and an executive summary overview is provided rather than a comprehensive report with component-specific details.
A level III reserve study is primarily recommended as a review of the current funding plan, making sure it is suitable for current economic conditions and that the association is prepared for any recent or near-term major repairs or replacements. Furthermore, if you have not had a level I or II reserve study conducted in the last two years, it’s imperative that you obtain a level II study, as several years of deterioration could substantially alter the condition of your property.
Level IV Reserve Study
Lastly, level IV reserve studies apply only to communities that have not yet been constructed. Because there is no physical property to assess, this level of service acts solely as a capital planning tool for the developer to budget adequate reserves. The component inventory, quantities, and measurements are derived from site plans, and useful life estimates are based on industry standards.
At Reserve Advisors, each level of reserve study service includes support with report implementation. No matter your level of reserve study, our engineers are always available to have a discussion with your Board, to help them develop a deeper understanding of the study, as well as to discuss our findings and best practices to implement our recommendations. After all, what is the point of conducting a reserve study if the proper resources are not available to discuss the reserve study firm’s findings and to support the implementation of its recommendations?