Example component list
The first step of the reserve study is to determine the component list. This is a list of all the major items in the building that need maintenance; it should be 30-40 items but can vary with the size of the building. There is a four part test to determine if an item qualifies for the component list:
- Must be part of the common area
- Must have a limited life
- Must have a predictable remaining life
- Must be above a minimum cost significance threshold (Minor items should be handled by operating budget)
Let’s look at an examples:
Should setting reserves aside for earthquake insurance deductable be on the component list? This item would fail #3- it is not predictable.
Should reserves be set aside for repairing water damage from a roof leak for inside the units? This item fails #1- this area is not in the common area
Should reserves be set aside for the construction of a new pool installed in the building? If there currently isn’t a pool in the building, then this is a capital improvement project which would be treated differently than maintenance. Once the pool has been built it can be added to the component list.
Estimates for how much remaining useful life each item on the component list has (RUL), quantity, and replacement cost are added from talking with contractors and construction cost manuals (Means Company, Inc., F.W. Dodge, Lee Saylor, Inc., Marshall & Swift) . This data is then used to calculate the total reserve requirement, the precentage funded, and the annual reserve contribution requirement. These numbers are usually presented on a summary page. The best number to look at when determining the strength of the HOA reserves is the percentage funded.