Homeowner Associations (HOA) Definitions

National Reserve Study Standards of the Community Associations Institute

Request a Proposal!

Common HOA Definitions:

Cash Flow Method
A method of developing a Reserve Funding Plan in which contributions to the Reserve Fund offset the variable annual expenditures from it. Different Reserve Funding Plans are tested against the anticipated schedule of Reserve expenses until the desired funding goal is achieved.

An individual line item in a Reserve Study developed or updated in the physical analysis. Components are the building blocks on which the Reserve Study is built.

Component Inventory
The task of selecting and quantifying Reserve Components. This task can be accomplished through on-site visual observations, review of Association design and organizational documents, review of established Association precedents, and discussion with the appropriate Association representative(s).

Component Method
A method of developing a Reserve Funding Plan in which the total contribution is based on the sum of contributions for individual components. See, cash flow method.

Condition Assessment
The task of evaluating the current condition of the component based on observed or reported characteristics.

Current Replacement Cost
See, replacement cost.

An actual (or projected) Reserve Balance less than the fully funded balance. The opposite would be a surplus.

Effective Age
The difference between useful life and remaining useful life. Not always equivalent to chronological age because some components age irregularly. Used primarily in computations.

Financial Analysis
The portion of a Reserve Study in which the current status of Reserves (measured as cash or percent funded) and a recommended Reserve contribution rate (Reserve Funding Plan) are derived, and the projected Reserve income and expense over time is presented. The financial analysis is one of the two parts of the study.

Fully Funded
100 percent funded; when the actual (or projected) Reserve Balance is equal to the fully funded balance.

Fully Funded Balance (FFB)
Total accrued depreciation; an indicator against which actual (or projected) Reserve balance can be compared; the Reserve Balance that is in direct proportion to the fraction of “used” life of the current repair or replacement cost. This number is calculated for each component, and these sums are added together for an Association tool.

Funding Goals
Independent of methodology utilized, the following represent the basic categories of funding plan goals:

  • Full funding – Setting a Reserve-funding goal of attaining and maintaining Reserves at or near 100 percent funded.
  • Baseline funding – Establishing a Reserve-funding goal of keeping the Reserve cash balance above zero.
  • Statutory funding – Establishing a Reserve-funding goal of setting aside the specific minimum amount of Reserves required by local statutes.
  • Threshold funding – Establishing a Reserve-funding goal of keeping the Reserve balance above a specified dollar or percent funded amount. Depending on the threshold, this may be more or less conservative than full funding.

Funding Plan
An Association’s plan to provide income to a Reserve Fund to offset anticipated expenditures from that fund.

Life and Valuation Estimates
The task of estimating useful life, remaining useful life, and repair or replacement costs for reserve components.

Percent Funded
The ratio at a particular point in time (typically the beginning of the fiscal year) of the actual or projected Reserve Balance to the fully funded balance, expressed as a percentage.

Physical Analysis
The portion of the Reserve Study in which the Component Inventory, condition assessment, and life and valuation estimate tasks are performed. This represents one of the two parts of the Reserve Study.

Remaining Useful Life (RUL); Remaining Life (RL)
The estimated time, in years, for which a Reserve Component can be expected to continue to serve its intended function. Components of projects planned for the initial year have zero remaining useful life.

Replacement Cost
The cost of replacing, repairing, or restoring a Reserve Component to its original functional condition. The current replacement cost would be the cost to replace, or restore the component during that particular year.

Reserve Balance
Actual (or projected) funds at a given point in time identified by the Association to defray the future repair or replacement costs of those major components the Association is obligated to maintain. Also known as Reserves, Reserve Accounts, or Cash Reserves.

Reserve Study
A budget planning tool that identifies the current status of the Reserve Fund and a stable and equitable funding plan to offset the anticipated future major common-area expenditures. The Reserve Study consists of two parts: the physical analysis and the financial analysis.

Special Assessment
An assessment levied on Association members in addition to regular assessments. Special assessments are often regulated by governing documents or local statutes.

An actual (or projected) Reserve Balance greater than the fully-funded balance.

Useful Life (UL)
The estimated time, in years, for which a Reserve Component can be expected to serve its intended function if properly constructed in its present application or installation.

Request a Proposal!