A reserve study is a budgetary planning tool that identifies a property's necessary major repairs and/or replacements and establishes a funding plan to insure that adequate monies are available for planned expenditures. A reserve study has two primary analyses: the physical analysis and the financial analysis. The physical analysis consists of a component study that identifies the major replacement or repair components of a property, their estimated costs and their estimated useful and remaining lives. The financial analysis is a funding study that incorporates information from the component study into a budget plan to fund the anticipated future expenditures.
The Sedgwick | Valuation Services Division Reserve Specialist compiles detailed data about your property from a thorough on-site inspection, field measurements, and examination of building construction plans provided by the client. Appropriate and accurate component sizes and counts are derived from these data sources. Without accurate factual data, the accuracy of the analysis will be compromised.
Repair/Replacement cost information is taken from a variety of sources, including national and regional cost estimating indexes, interviews with developers, builders, consultants and contractors, as well as actual costs from similar properties within multiple market areas. Furthermore, an association's actual historical reserve expenditures are carefully considered in every Sedgwick | Valuation Services Division reserve study.
Sedgwick | Valuation Services Division utilizes a nationally recognized reserve study software program in completion of all reserve studies. This software provides in depth breakdowns of each and every components' cost, total and remaining useful lives, as well as a year by year schedule for all planned reserve expenditures. Also provided is an annual summary of beginning reserve fund balances, ending reserve fund balances, planned expenditures, cumulative interest income, and graphical information.
Sedgwick | Valuation Services Division reserve studies employ two separate and distinct analysis methodologies to calculate reserve contributions; the Component Funding Analysis and the Cash Flow Analysis methodologies.
The Component Funding Analysis method is a straight-line accounting procedure that calculates the annual contribution amount for each individual line item component and then sums these components to calculate the total annual contribution rate for this analysis.
The Cash Flow Analysis is a method of calculating reserve contributions where contributions to the reserve funds are designed to offset the variable annual expenditures from the reserve fund. Unlike the Component Funding Analysis, which is essentially a snapshot for one fiscal year, the Cash Flow Analysis is a long term reserve analysis that considers such factors as interest income, construction cost and/or inflationary increases for individual components, and an association's preference with regard to minimum reserve fund balances during the study period. In many cases, conversion to the Cash Flow Analysis method provides full reserve funding at a lower annual contribution rate compared to the Component Funding Analysis method.