Historical Standards
Two organizations have published standards for reserve studies. The Community Associations institute (CAI) established standards in 1998 for those individuals that hold CAI's Reserve Specialist (RS) designation. CAI's standards are discussed here. At Facilities Advisors we long felt that CAI's standards were inadequate so we took the initiative, and with several other community association and timeshare industry professionals formed the International Capital Budgeting Institute (ICBI) in 2014 for the specific purpose of creating a comprehensive set of reserve study standards that would address the Clarity, Consistency, and Comparability issues raised by many in the industry, while still allowing reserve preparers the flexibility to offer their own desired reports in addition to the mandatory financial exhibits. ICBI standards were specifically designed to "wrap around" CAI's standards such that any individual applying ICBI standards is automatically also following CAI's standards, but just adding the factors necessary to achieve the goals of Clarity, Consistency, and Comparability.
The International Capital Budgeting Institute (ICBI) announced the adoption of new professional reserve study standards effective April 16, 2015. These standards, known as Generally Accepted Reserve Study Principles and Generally Accepted Reserve Study Standards, represent the culmination of a year-long effort by ICBI to provide standards for reliable, consistent reserve studies for the community association and timeshare industries. These standards represent the biggest change in the reserve study process in twenty years and will result in better reliability and consistency of reporting in reserves.
ICBI president Gary Porter formed a team of 16 industry professionals from six countries for this process. The ICBI standards committee included a broad spectrum of industry professionals that were able to provide a perspective reflecting all stakeholders in the industry. These are truly global standards and are already being applied in several countries.
The primary differences of the new ICBI standards as compared to previously existing standards are best summarized in four broad categories:
- A more comprehensive definition of components – The standards expand and clarify the definition of components to reflect the true maintenance responsibility of the association. This results in greater consistency and reliability in reserve studies.
- A more definitive description of service levels – ICBI provides for three service levels; independent study, reserve management plan (collaborating with the association), and consulting.
- A requirement for consistent calculations – ICBI standards establish requirements for consistent calculation methods and software capable of making accurate calculations. Standards also require consistent terminology definitions.
- A consistent and uniform approach to reporting on reserve studies – ICBI standards require specific, consistent reporting formats on a summary basis, generally with a report of no more than 20 pages. Supplemental schedules providing the detail are generally separated from the basic report.
- The result to the public is a reliability and uniformity that benefits all users of reserve studies. These standards achieved the goals of Clarity, Consistency, and Comparability which the industry needs.
There are articles providing a more complete description of these standards in the Linkedin groups “Condo and HOA Finances” and “Condo and HOA Reserve Studies.” Another financial related group is “Condo and HOA Taxes.” All are open groups, but you have to request membership.
Compared to previously existing standards, there are major differences in the ICBI standards. ICBI determined that without first establishing the broad conceptual principles that are the foundation of the process, reserve study standards could not be established. The Generally Accepted Reserve Study Principles provide far more depth to the understanding of the conceptual principles of reserve studies and group the principles into the following subsections to aid in understanding:
- General Principles
- Component Principles
- Calculation Principles
- Service level Principles
- Reporting Principles
- Software Principles
The Generally Accepted Reserve Study Principles give the community association industry the most comprehensive guidance available on reserve studies, and with the related Generally Accepted Reserve Study Standards provide for the Clarity, Consistency and Comparability not previously existing.
Facilities Advisors was proud to be the leader in the development of these principles.
Generally Accepted Reserve Study Principles and Generally Accepted Reserve Study Standards were issued by the International Capital Budgeting Institute (ICBI) in April 2015. These professional standards are the recognized international standard. These ICBI standards provide for a consistency and reliability not previously seen in reserve studies. Facilities Advisors International prepares reports in accordance with Generally Accepted Reserve Study Standards.
The ICBI standards are reproduced with permission here.
CAI Reserve Study Standards
The Community Associations Institute (CAI) has established standards for reserve studies prepared by those individuals holding the CAI RS (Reserve Specialist) designation. The standards provide general information regarding capital reserve studies, describe the three recognized types of reports, and list reserve study report required contents. These standards are far less comprehensive than Generally Accepted Reserve Study Standards, which are the recognized international standard. The Community Associations Institute has published a white paper entitled Reserve Study Best Practices. While we believe that this publication is useful, we also believe it is incomplete. It is provided so readers are aware of what others in the industry believe are best practices.
Click here to view CAI National Reserve Study Standards
Types of Reports
Facilities Advisors International offers three types of reserve study reports, which correspond to the Generally Accepted reserve Study Standards; Type 1 - Full Reserve Study, Type 3 - Update of Reserve Study Without on-site analysis.
Type 1 - Full Reserve Study
We perform a complete on-site analysis, obtaining or verifying measurements and counts of common area components. This also includes an evaluation of condition and photo inventory of most components. We then compile the information obtained into our easy-to-understand reports.
Type 2 - Update of Reserve Study with On-Site Analysis
Once a full reserve study has been completed by Facilities Advisors, inc., we will often perform updates with an on-site analysis. The Type 2 report is less comprehensive than a Type 1 report in that we do not obtain or verify measurements and counts unless it appears that there have been changes. We do evaluate condition and update the photo inventory where necessary. We then compile the information obtained into our easy-to-understand report.
Type 3 - Update of Reserve Study Without On-Site Analysis
An annual update to the reserve study is simply good planning. This allows you to "refresh" the funding plan and account for minor variations form the original funding plan. We inquire about expenditures made, changes in pricing of replacement costs, and variations in funding from the original plan, but do not perform an on-site analysis. This is a valuable planning tool at a very reasonable cost, generally no more than 25% of the cost of a full study.