Reserve Study Levels Explained
Here is a full breakdown of the different levels of reserve studies, based on the standards set by the Community Associations Institute (CAI). The primary difference between the levels is the scope of work and, most importantly, whether an on-site inspection is performed.
Summary Comparison
This table provides a quick comparison of the four levels.
Now detailed explanations for each of the four levels.:
Level 1: Full Reserve Study
What it is: This is the most comprehensive and detailed study, establishing the association's baseline reserve plan from scratch. It is the "ground zero" report for all future updates.
When it's done: This is performed for a new community or for an older community that has never had a professional reserve study.
Full On-Site Inspection
A reserve specialist conducts a thorough physical evaluation to identify, count, and measure all common area components.
Component & Condition Assessment
A complete component inventory is created. Each item is assessed to determine its:
- Useful Life (UL): The total expected service life.
- Remaining Useful Life (RUL): The estimated time remaining before replacement.
- Replacement Cost Value (RCV): The current estimated cost to replace.
Financial Analysis
The specialist calculates the current "Percent Funded" and prepares a long-term funding plan (usually 30 years) to cover all anticipated replacements.
Level 2: Update with Site Visit
What it is: This is the standard "check-up" study, which uses a previous Level 1 or Level 2 study as its foundation and requires a physical inspection.
When it's done: This is typically recommended every 3 to 5 years to ensure the financial plan stays aligned with the actual, real-world condition of the property.
On-Site Verification
The specialist walks the property to verify the component list is still accurate and to visually inspect the condition of the components.
Update Condition Assessment
The specialist re-evaluates the Remaining Useful Life (RUL) of components based on their observed condition.
Update Financial Analysis
The funding plan is updated based on the new RULs, current replacement costs (accounting for inflation), and the association's current reserve fund balance.
Level 3: Update without Site Visit
What it is: A Level 3 Update, or "desktop update," is a cost-effective, financial-only review that does not include an on-site inspection.
When it's done: This is often done annually to keep the budget and contributions accurate in the years between the more thorough Level 2 on-site updates.
No Site Visit
The specialist relies on information (e.g., projects completed, deferred projects) and financial data provided by the board or property manager.
Financial Reconciliation
The specialist adjusts the financial plan based on the current reserve balance, reported expenses, and updated figures for inflation and interest.
Schedule Adjustments
Component replacement schedules are updated based on board input and actual expenditures since the last study.
Level 4: Preliminary Study
What it is: A Level 4 study is a Preliminary Study prepared for a community or project that is not yet built.
Purpose: This serves as a budgeting tool for the developer to establish the initial association budget and set the opening reserve contributions.
No Site Visit
There is no physical property to inspect.
Document Review
The specialist creates the entire initial reserve study (component list, life estimates, and funding plan) based on architectural plans, blueprints, and other design documents.
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Homeowner Education
"Now we have the tools to have a tangible anticipated replacement list that evolves so you would know projects coming up whereas before people were just using their own judgement. It's a great tool to educate the rest of the association about why a component is scheduled for replacement, which helps with teaching or convincing owners."
Ahead of the Curve
"SmartProperty is ahead of the curve in addressing what we believe will be a change in the market."
Saves Time
"SmartProperty is allowing me to conduct "what if" analysis on our Reserve study in real time, without the clumsy old process of submitting marked up reports and waiting for a response. I was able to evaluate all my proposed changes in a day, rather than a couple of weeks!"
Builds Confidence
"SmartProperty allowed us to look at the association's expenses and budget as a whole.With SmartProperty I was able to run scenarios myself, see all the component costs, and really pinpoint the best allocations for the community, In 20 years of working in the industry, I have never been more confident with what's in my reserve study."
Keep Everybody on the Same Page
"Before SmartProperty, the amount of time and communication it would take to complete a project was endless. Now, with SmartProperty, I can give access to my vendors or contractors to update components in real-time when applicable. With the ability to upload photos or files of work orders or service requests, I can keep track of all the moving parts within my project at the touch of a button whenever I need to."
Stay on Track
"Staying on top of projects in spreadsheets used to be overwhelming. Not anymore. I love usingSmartProperty's project tracking tool because it helps track invoices and payments and matches them to the reserves. It makes sure the contract is being followed and the budget stays on track."