January 2025 CT

RESERVE STUDY... from page 39.

true Master Plan. Today, the Reserve Study Standards and NJ legislation address this, and reserve studies are now incor porating these components. The reserve study also identifies the strength of the reserve fund. A reserve fund’s strength is not measured in the amount of money in the reserve account. Over the years, I have heard boards say that they are in a good position because they have $100,000 or even $1,000,000 in the account. This may be hard to receive, but an association with $100,000 in the account may be in a stronger financial position than the association with $1,000,000. Reserve fund strength comes down to % fund ed, an equation that compares how much an Association has in their account measured against how much they should have in their account at a given point in time. Lastly, the reserve study provides the association with a funding plan. Funding plans include full funding, threshold funding, and baseline funding. At a minimum, the funding plan is designed to ensure that the association has the money in the account to address the projects when they are estimated to come due. The funding plan is what causes most board member and community angst. The funding

remaining useful life of components, and the estimated cost of projects. The reserve study also identifies the components that an association is responsible for maintaining and/or replacing. Components must meet the three-part test to be included in the reserve study. This three-part test states that: 1. The component must be the obligation of the association to maintain or replace. 2. It’s need and schedule can be reasonably anticipated. 3. The total cost for the project is material to the associ ation, can be reasonably estimated, and includes all direct and related costs. Until recently, many long-life components (like vinyl sid ing, windows, masonry work, etc…), unseen components (plumbing lines, fire suppression lines, etc..), and preventa tive maintenance components (painting, deck staining, etc..) were not included in the study. As a result, the reserve study served as a general guide but failed to give the community a

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JANUARY 2025