Reserve Studies - excluded items

You may want to ask the reserve specialist these questions - this is your first reserve study after all, so why would they expect you to have the answers? The numbers don't have to be extremely precise - what's more important is that nothing major gets missed.

That said, you could do some research on the subject and consider all the items that make up a component and total them. For example, your clubhouse has the flooring, heating/air conditioning units, furniture, kitchen appliances, roofing, siding, etc. How much would it cost to replace all that? That might be the threshold for that area. Your insurance company may also have some numbers you can use.

Here's a citation from our study. "Which Physical Assets are Funded by Reserves? There is a national-standard four-part test to determine which expenses should appear in your Reserve Component List. First, it must be a common area maintenance responsibility. Second, the component must have a limited life. Third, the remaining life must be predictable (or it by definition is a surprise which cannot be accurately anticipated). Fourth, the component must be above a minimum threshold cost (often between .5% and 1% of an association's total budget). This limits Reserve Components to major, predictable expenses." You personally won't have to do any research as the specialists have a lot of data at their fingertips

Anything with an estimated life of less than a year should be in your operational budget. My below is based on about 10 years of working with our specialist every year. Our PM and engineer update him on repair & replacement of components for the previous so he can "reset" their remaining useful lives.

Your specialist will be able to add up the replacement cost of all of your components and will know your annual budget and recommend somewhere between the .5 & 1% of your annual budget for items to leave out. No items on our study are less that $2,000 & there's maybe just a dozen of those, e.g., our gym's drinking fountain.

Here's a low cost item--individually: Exit signs. We have 132, which were recently replaced all at once even though the interior ones showed less wear than the exterior ones. Best aesthetically, though, if they all match. So, yes, all of your pool furniture would be two reserves components. One: est. useful life before the seating materials needs to be repaired. Ours last about 8 years. Two: Est. remaining life to replace all of it. Ours was 20 years, but they and our umbrella canopies still are very good after 22 years. They stay out 24/7/365 so that info matters in the estimate of useful lives. Your two pools will be two different components.

Your gym equipment will be itemized as they all have different estimated lives and different costs. We're high rise 25-story twin towers so have 4 tower elevators and 2 2-story elevators, rooftop HVAC systems that must be replaced by cranes, + a great deal of mechanical pumps/motors, life-safety equipment plus a gym, 2 "grand lobbies," couple of party rooms, underground parking, i.e., over $11m worth of components of which we have around 100.

We have several different types of exterior lighting. The 31 "step lights" are all bundled together as one component as are the 21 Art Deco fixtures on the street exteriors of our towers. We also have "ground lights in our hardscape planters, and bollard lights in our circular drive. Each type has its own line item. So, David, all of the lights that are the same as the ones on your stone walls will be one reserve component. They are a certain brand and are of a certain ge, so your analyst will be able to estimate the remaining useful lives nicely. Your analyst will tell you the estimated life of your stone walls. Myabe well over 30 years so it won't be on the study. BUT if the stones are held in place with some kind of caulk or mortar, the analyst may know that it'll need to be replaced in x years.

Neither you nor your PM should try to guess at the estimated remaining useful lives. This is for the pros. Your engineer for your premises may have a few insights., but a good specialist has seen dozens of everything you have. To arrive at an estimated useful life, your analyst will read manufacturer's literature, National Industry cost. est. guidebooks, data bases of local reserves at similar associations, the analyst's own experience in your locale. (Make sure your specialist IS local since local climate matters especially re: roofs, streets. Happy to answer further questions.

Our reserve company came up with the costs. Then we reviewed and would changes based on quotes we received for some of the work. These were items we were going to start soon. Just got lucky on timing of reserve study.

We in no way had quotes for everything on their list or plan to go get quotes to confirm the price. Sounds life they are pushing this task off to you.

Kerry and ElleN have good posts with which to start your research but remember, it's about what works for YOUR community, so it won't matter what everyone else is doing because you don't live there. Some communities may be smaller or larger, have few amenities or lots of them, etc., so using other communities is a guide at best. At the very least, look at the ones who are about the same size and have the same amount of common area for a start.

I think this wording is good:

Minimum Threshold Cost – Finally, the expense must be more than what can be readily
absorbed by the association’s ongoing annual operating budget. Also, if the expense is not
knowable within a reasonable certainty after prudent research, then it fails this test.

See https://www.caionline.org/LearningCenter/credentials/Documents/NRSSClarificationArticles.pdf

I am reminded of the "contingency fund" line item for the operating budget. The "contingency fund" is the cushion for unexpected or emergency expenses. Conventional wisdom is to put three to six months of operating expenses into this line item. This contingency fund pays for anything not covered by the reserve funds. A HOA should be careful about drawing from this contingency fund. Still, if there are not too many smaller items (with lives longer than one year) this argues for a threshold in the few thousand dollar range.

Knowing HOA boards, I tend to think the safer route is setting a lower threshold and so compelling owners (and future boards) to save, save save using their reserve fund. Because gosh knows historically boards and owners tend to fight setting aside money in reserves with tooth and nail.

For items that don't belong in your study, the national standard for reserves analysts/specialists, which is a CAI standard, is .05 - 1% of your annual budget, which is a realistic range. I'd say $5,000 probably is too high, David, but that would be based on your annual budget.

I don't know how this works in your state, but CA required a reserve list & cost of each item from the developer to give final approval to open our condo buildings in 2000. So...such a list shows info that the analyst needs, i.e, we have nearly 30,000 sf of condo balconies; 520 lineal ft. of pool & entry fencing; 1 Raypak 406k BTU Pool heater/vent; 33 exhaust/supply fans, appx. $400,000 to replace all.

The point is your specialist will not need to count your various exterior lighting fixtures or measure your pool decks and one or more types of fencing. They all should be in some sort of budget & reserves doc that DE required.

There were some very large components that our Board voted to take off of the study and the specialist agreed. For example, 221,000 sf of underground garage walls & ceilings. We realized we would never paint the entire garages, but touch up on columns/walls is frequent (no one knows how to drive!), so "paint" in our operating budget was increased accordingly. I think he was OK with the other similar components we removed because they weren't his original recommendations. The you special does recommend something it's that same as advice form your attorney or CPA. They are the professional experts. If your Board disagrees with a component being on the study, for example, you'd be just as respectful as with any other expert and you also might get some push-backform the specialist based on their experience & expertise.

With Tim, the contingency fund in reserves is only for reserve items that fail early.

You can cite where you saw the 0.5% to 1% figure. Regardless, of course this number is not written in concrete.

I don't know why you have to supply prices to the reserve study people, Reserve Study preparers in my experience are like the Tax Man from the movie Popeye.
They have prices on replacement value and add in for inflation. Something just does not seem right.

Also, yes there are items that do get excluded from the reserve study because their replacement value won't impede your operating budget.

From my first post on this thread, a portion:"Which Physical Assets are Funded by Reserves? .... Fourth, the component must be above a minimum threshold cost (often between .5% and 1% of an association's total budget)...." I'm a little concerned that the analyst or specialist did not recommend a range to you, David.

The complete citation is from my HOA's 2023 reserve study authored by our reserve provider, which I guess I cannot mention here. It is a nationwide firm, whose founder is considered a true expert in the field. Our credentialed (by CAI) reserves specialist (RS) lives & works locally and specializes in high rises.

I'm not saying David, that you need a specialist in HOAs with lots of amenities such as yours, but, if I were you, I'd want some assurance that your credentialed specialist or analyst has done onsite visits for HOAs with a lot of components, vs mainly HOAs with 6-8 components.

Here's another example of items too inexpensive to go in the reserve study: filter to the 30 or so interior heat pumps we have. they basically are "HVAC" Units. Their filters are not in the Study but are part of the general "Mechanical " category in our operational budget. Similarly, light bulbs for our many interior & exterior light fixtures are not included in the estimated repair cost of any category of lighting. Instead, we have a line item in our operational budget for light bulbs.

How old is your HOA, David? I know you were under developer control when you joined the forum. 5 or so years? If so, there may already be some fairly inexpensive reserve comments that have or are reaching the end of their useful lives, e.g., certain pumps.

In addition, the cheaper "parts" of more expensive reserve items are not always thrown all into a operating budget's "Contingency" line item, but may very well have their own, or be funded by somewhat general categories like "plumbing."