about reserve studies

​Preparing the annual budget and overseeing the association's finances are perhaps the most important responsibilities of board members. The annual operating and reserve budgets reflect the planning and goals of the association and set the level and quality of service for all of the association's activities.

A reserve study is an important tool which an association can reference to determine adequate funding levels to meet current and future reserve component expenditures. Within this study you will find recommended allocation rates to the reserve account as well as a timeline for expected common asset replacements costs and their respective schedules for repair/replacement. The study can be broken down into two parts:

Component Analysis

The Reserve Analyst will determine component condition assessments and research associated cost for the common area assets to be included in the study based on a limited scope visual inspection (Level I). The reader of this report will find current condition levels, anticipated remaining useful life and projected repair and/or replacement costs for common area assets.

  • Reserve Component
    A reserve component is a commonly owned asset which will require a reserve balance for maintenance and replacement. A reserve study estimates the needed cash reserves to repair and replace association’s reserve components over their useful life expectancies. Examples can include roofing, siding, fencing and swimming pools.

Financial Analysis

The Reserve Study Professional​ will provide recommendations for current and future reserve contribution rates to the reserve account based on current and expected financial data provided by the Client as well as take into account the timeline of expected expenditures over the 30 years covered in this study. The Reserve Analyst’s recommended financial strategy will guide the association on a path to becoming “Fully Funded” in a manner which is predictable, fair to the membership and in line with statutory requirements.

  • Fully Funded
    ​When the actual or projected Reserve Balance is equal to the Fully Funded Balance. This occurs when the funds in the reserve account are equal to the depreciated amount of the components after taking into inflation of costs and interest earned in any given year.  [TOP]

Reserve Study – Levels of Service

Reserve studies fall into one of three categories as defined per statutory requirements:

  • Full Study Level I
    The Reserve Analyst conducts a component inventory, a condition assessment (based upon on-site visual observations), and life and valuation estimates to determine both a "fund status" (Percent Funded) and "funding strategy."

  • Full Update Study Level II
    The Reserve Analyst conducts a component condition assessment (based upon on-site visual observations), and life and valuation estimates to determine both a "fund status" (Percent Funded) and "funding strategy." The quantification of the components is taken from a prior reserve study provided by the Client.

  • Update Study Level III
    The reserve provider updates the life expectancies and cost expectation of the components to determine the "fund status" (Percent Funded) and "funding strategy" without a site inspection. The quantification and condition assessments of the components are taken from a prior reserve study provided by the Client.  [TOP]

Reserve Study Goals

Typically the goal of the Reserve Study is to create a funding strategy that guides the Association towards a fully funded balance within the 30 year period covered in this report. A "Fully Funded" reserve balance would ideally fund all expected component repair and/or replacement expenses. While this is the goal, future costs, interest rates, inflation rates and actual life expectancies of components, will vary which will likely result in a funding balance that will fluctuate above and below the fully funded level even when allocating the ideal amount towards the reserve account. [TOP]

Reserve Study Methods

There are numerous accepted methods used to prepare reserve studies; the two most common being the Cash Flow Method and the Component Method.

  • Cash Flow Method
    The cash flow method develops a reserve-funding plan where contributions to the reserve fund are designed to offset the variable annual expenditures from the reserve fund. Different reserve funding plans are tested against the actual anticipated schedule of reserve expenses until the desired funding goal is achieved. This method sets up a "window" in which all future anticipated replacement costs are computed, based on the individual lives of the components under consideration. Typically this funding strategy is more flexible in a real world scenario, specifically when component remaining useful life falls below what is expected at the onset of a reserve study. 

  • Component Method
    ​The component method develops a reserve-funding plan where the total contribution is based on the sum of contributions for individual components. The component method is the more conservative (typically higher reserve account balance) of the two funding options, and assures that the association will achieve and maintain an ideal level of reserves over time. This method also allows for computations on individual components in the analysis. However this method has also limitations with respects to variations in actual useful life of components and is much more time intensive to accurately follow this funding strategy. 

We have analyzed each reserve component and provided a useful life expectancy, an estimated remaining useful life, and projected repair/replacement cost for each component. Future reserve expenditures have been calculated utilizing average historical inflation rates.

Unless noted otherwise, the present repair/replacement costs have been estimated using cost manuals such as the National Construction Estimator, RS Means and/or Marshall & Swift, all of which are nationally recognized for accuracy; modifications to the costs are applied using their appropriate regional cost adjustment factors.  When possible, Association vendors have been interviewed for their historical and firsthand knowledge of components.

After the expected component expenses are established your Reserve Analyst then determines the appropriate contribution rate and creates a financial plan which will adequately cover the current and future projected expenses. This financial plan will guide the Association to a fully funded reserve balance, minimizing the risk of special assessment(s) and deferred maintenance.   [TOP]

Reserve Study Process

process for reserve studies

This Reserve Study has been completed utilizing numerous steps which can be broken down into several main categories


  • Component Analysis
    ​This step began with research to identify the correct components to be included within this reserve study. A limited scope visual inspection of these components was completed to determine the quantity and condition levels. Current and projected component expenditures were then established so that an adequate funding plan could be produced. When possible your Reserve Analyst interviewed Association Vendors for their firsthand knowledge of the components. Level II and Level III Studies will require some of this information be taken from a prior study.

  • Financial Analysis
    Your Reserve Analyst has reviewed the financial statements of the Association, with respect to the reserve account(s), as well as interviewed Association Representatives. The financial analysis provides the Reserve Analyst with important and formative factors such as current and expected reserve balances and number of paying members. Inflation and interest rates are applied to costs and reserve account balances to give an estimate of the Association’s future liabilities and account balances.


  • Financial Strategy
    The Reserve Analyst then determines the expected repair/replacement costs of the components, over the life of the study, to establish the appropriate reserve contribution rate to work towards a fully funding level. Current and future reserve contribution rates are impacted by factors such as interest rates, inflation rates, component actual useful life, and component repair/replacement costs.

  • Completed Reserve Study
    ​This Reserve Study Report is a culmination of the steps we have taken in developing a well thought out and appropriate funding plan for the Association with respects to the common area component repair/replacement expenses.  [TOP]

Percent Funded Analysis 

We utilize the concept of "Percent Funded" to measure the reserve account balance against a theoretically ideal balance.  Percent Funded is often used as a measure of the "Financial Health" of an association.  The assumption is, the higher the percentage, the greater the "Financial Health" and the less likelihood that there will be a reliance on special assessments or loans in the future.  The question of substance is simply: "How much is enough?"  To answer the question, some understanding of Percent Funded is required.

For simplicity sake let’s assume your community has one common area asset, exterior siding paint, which has a useful life of 5 years and a cost to replace of $5,000. We are going to ignore interest and inflation for this example.  The paint will depreciate 20% per year until it has exhausted it useful life and will need to be recoated at the end of year 5. To be fair to the membership of the community (current and future members) each year the members should be charged an amount equal to the amount the roof has deteriorated; an amount that equal to $1,000; ($1,000 per year  x 5 Year = $5,000).

This is visually expressed; the Communities being at different levels of “Percent Funded” due to their respective allocation rate differences. Community A matching the monetary deterioration to the exterior paint, Community B being marginally ready but still will fall short of the total expected costs at the end of year 5 and Community C will be significantly underfunded with their respective allocation amount to the reserve account. 

percent funded concept

Simply put, Percent Funded is the ratio of how much money is in the reserve account versus how much money the reserve account “ideally” should have at a specific point in time.

It is important to remember that there is no right or wrong “percent funded” but the lower percent funded an Association is the higher the risk of reliance on special assessments or loans to meet expected cost related to repair or replacement of common area assets when their useful life has been exhausted.  Additionally Associations that are consistently in the Low Percent Funded range are at a much greater risk of litigation from its membership, usually due to the perceived lack of fiscal responsibility.  [TOP]​

Fully Funded Analysis

A Fully Funded Balance (FFB) is defined as the Current Cost (CC), multiplied by the Effective Age (EA), divided by the Useful Life (UL). Interest Rates (r) and Inflation Rates (i) are then calculated into the equation. This number has been summed together for each component creating a fully funded balance.

In essence, Fully Funded is a reserve account balance equal to the estimated accumulated depreciation of the association’s common area assets. As common area assets grow older, they depreciate until they no longer perform their intended function, at which time; the asset is fully depreciated and must be replaced. The fully funded balance will equally match this depreciation to the assets over time.

The fully funded balance is simple enough to determine if the community has only one common area asset as the above roof example shows. Community” A” is fully funded as the reserve account balance is equal to the estimated amount the roof has depreciated at year 5. Most communities however have many components and a corresponding fully funded balance that ranges from one year to the next as components are repaired/replaced, remaining useful life expectancies are updated over time and the common area asset list grows or shrinks over time.

It's important to realize that a fully funded balance is not the total replacement cost of the common area assets. A community which has a fully funded balance one year then decides against following recommended increases to offset inflation can very likely fall below a fully funded balance in a relatively short period of time.  This is a common scenario when membership request lower dues and the reserve account balance appears to be very large.   [TOP]

fully funded balance, fully funded

Underfunded Versus Overfunded

Most communities we encounter are underfunded, some severely so, with respects to their common area assets. In the above roof example this simple scenario has relatively easy to manage expenses (the one roof). In reality, communities have many common area assets each with their own useful life and remaining useful life. Costs and the timeline for expected replacement/repair are often difficult to manage; the proper use of a reserve study can be extremely helpful for a community’s manager.

  • Underfunded Community
    An underfunded community will need to play catch up or rely on special assessments/loans when the time comes for repair and replacement of common area assets. The present and future members are being penalized for the past community members not paying their fair share into the reserve account; remember the allocation amount to the reserve account needs to offset the depreciation to the components in each year. At some point in time the expenses will come due and it is the members at that time that will have to deal with much higher HOA dues or special assessments. Over many years a community will have many members so it only makes sense to have each pay their fair share in each year that they are in the membership pool. Additionally inflation of expenses impacts the fully funded balance in any given year; it is the membership paying the dues in that period of time that should be impacted accordingly.   

  • Overfunded Community
    A less common situation is a community which is consistently highly overfunded (percent funded which is substantially in excess of 100%). In this scenario it is the current community membership which is being penalized as they are being charged more than the depreciation of the assets of the community. While some Boards may view this as being more conservative, as the reserve account will have a higher balance, it is still an unfair practice as the allocation amount to the reserve account is in excess of the deprecation to the common area assets; current members are paying for future members share of the depreciation to the common area assets in this scenario.

One of the main goals of the reserve study and the recommendations of the Reserve Analyst is to create a financial strategy which is fair to the current and future community membership.  [TOP]

Funding Strategies

There are four basic funding strategies most commonly utilized and accepted in the reserve study industry. It is recommended that associations consult professionals to determine the best strategy or combination of plans that best suit the Association's need. Additionally, associations should consult with their financial advisor to determine the tax implications of selecting a particular plan. The four funding strategies and descriptions of each are detailed below.

  • Full Funding Strategy
    Given that the basis of funding for reserves is to distribute the costs of the replacements over the lives of the components in question, it follows that the ideal level of reserves would be proportionately related to those lives and costs. If an association has a component with an expected estimated useful life of ten years, it would set aside approximately one-tenth of the replacement cost each year (ignoring interest and inflation). At the end of three years, one would expect that three-tenths of the replacement cost to have accumulated, and if so, that component would be "fully-funded." This model is important in that it is a measure of the adequacy of an association's reserves at any one point of time, and is independent of any particular method which may have been used for past funding or may be under consideration for future funding. The formula is based on current replacement cost, and is a measure in time, independent of future inflationary or investment factors. When an association's total accumulated reserves for all components meet this criteria, its reserves are "fully-funded."

  • Baseline Funding Strategy
    The goal of this funding method is to keep the reserve cash balance above zero. This means that while each individual component may not be fully funded, the reserve balance overall does not drop below zero during the projected period. An association using this funding method must understand that even a minor reduction in a component's remaining useful life can result in a deficit in the reserve cash balance specifically in years when cost are substantial.

  • Threshold Funding Strategy
    This method is based on the baseline funding concept. The minimum reserve cash balance for threshold funding, however, is set at a predetermined dollar amount by the Client or Reserve Analyst.  

  • Statutory Funding Strategy
    This method is based on local statutes. Per statutory requirements all reserve studies must include a Baseline Funding Plan, a Reserve Analyst ‘s Recommended Funding Plan and a Funding Plan that results in a 100% funded reserve balance within 30 years without reliance on special assessments.  [TOP]

Funding Levels

The goal of this reserve study is to guide the Association towards a path of becoming fully funded over the 30 year period covered in this report. The graph and comments below illustrate and explain the adequacy of the different funding levels.

funding level for community
  • 70-100 % Funded - Good
    At this level, the Association is considered to have a good level of funding. The risk of special assessments and deferred maintenance is minimized. While the goal is to reach and remain at the 100% funded mark the actual funding level will likely fluctuate above and below 100% due to changing component expenses in any given period of time covered in this reserve study.

  • 30 – 70 % Funded - Fair
    A fairly funded Association is typically one on the right path to becoming fully funded but one that can also run into trouble if large expenses arise such as unexpected component failures or rapidly rising costs, specifically in years when large expenditures come to fruition.

  • 0 – 30 % Funded – Poor
    A poor funding level often forces an Association to rely on special assessments and/or loans. With insufficient funds the Association may not be able to meet predictable common asset expenditures. At this level of funding many communities choose to ignore condition deficiencies over time and suffer from significant deferred maintenance issues which in turn hurt property values.  [TOP]

Impact of Component Useful Life

The projected life expectancy of the major components and the reserve funding needs of the association are closely tied.  Performing the appropriate routine maintenance for each major component generally increases the component useful life, effectively moving the component expense into the future, which reduces the reserve funding payments of the association.  Failure to perform such maintenance can shorten the remaining useful life of the major components; increasing the reserve funding payments of the association.  [TOP]

Included Common Area Components

Reserve expenses of common area components are major expenses that occur other than annually and which must be budgeted for in advance in order to provide the necessary funds in time for their occurrence. Reserve expenses are reasonably predictable both in terms of frequency and cost. However, they may include significant assets which have an indeterminable but potential liability which may be demonstrated as a likely occurrence. They are expenses that when incurred would have a significant impact on the smooth operation of the budgetary process from one year to the next if they were not reserved for in advance.

A common concern among Associations is what common area components are to be included and funded for in the Reserve Study. Nationally recognized Reserve Study Standards indicates reserve components need to meet the following criteria:

  • The component is community owned and maintained
  • The component is not covered in a maintenance contract
  • The component has a limited life expectancy
  • The component has a reasonably defined useful life
  • The cost is above the minimum association imposed expense threshold   [TOP]

We have found the above criteria cover the vast majority of components but there can be exceptions, such as components which are not clearly recorded in the governing documents. In these instances we will discuss the options available with the Association and determine how they have been historically treating these “gray” areas.  Examples of included Common Area Components are:

  • Roof Replacement
  • Pool Equipment Replacement
  • Painting
  • Pool Furniture Replacement
  • Deck Resurfacing
  • Tennis Court Resurfacing
  • Fencing Replacement
  • HVAC Equipment Replacement
  • Asphalt Overlay
  • Pond Liners Replacement
  • Pool Re-plastering
  • Lighting Replacement   [TOP]

Excluded Common Area Components

Some common area components may have been left out of the study or been included in the component list as an “excluded item” and not been funded for. These components will typically fall into one or more of the categories listed below.

  • Below Threshold Costs
    ​Component repair and/or replacement costs that are deemed too small to be considered capital expenses and are typically included in the operational or maintenance budget of the association have not been funded for in this study. Minimal threshold costs are determined by the Association or by you Reserve Analysts based on the typical minimal threshold costs for similar sized associations.

  • Operational Expenses
    These occur at least annually and can be effectively budgeted for each year. They are characterized as being reasonably predictable both in terms of frequency and cost. Operational expenses include all minor expenses which would not otherwise adversely affect an operational budget from one year to the next.

  • Very Long or Unpredictable Useful Life Expectancy
    Components which, when properly maintained, have a very long useful life and which cannot be accurately predicted, have been excluded from this reserve report. These components may require maintenance and upkeep which is typically funded from the operational budget of the association.

  • Unit Improvements
    Improvements made to the property that fall within the Governing Documents’ unit description summary (owners responsibility), are not typically considered to be community owned or the responsibility of the association.

  • Other Non-Association Owned
    Improvements installed on the property but which are owned by other parties such as governmental agencies, utility companies, the US Postal Service, etc., are not included in this reserve study. The replacement and maintenance of these improvements are not typically the responsibility of the association.

Additionally, budgeting is normally excluded for repairs or replacements of assets which are deemed to have an estimated useful life equal to or exceeding the estimated useful life of the facility, community as a whole, or exceeding the legal life of the community as defined in an association's governing documents. Examples include the complete replacement of the foundation, elevators, wiring and often times plumbing. Also excluded are insignificant expenses which may be covered either by an operating or reserve contingency, or otherwise in a general maintenance fund. Costs which are caused by acts of God, accidents or other occurrences which are more properly insured for, rather than reserved for, are also excluded. Examples of typical excluded Common Area Components are:

  • Minor Roof Repair
  • Pool Filters
  • Minor Concrete Repairs
  • Foundation Replacement
  • Annual Landscaping Costs
  • Retaining Wall Replacement
  • Pool Maintenance
  • Electrical Wiring  [TOP]

About the Reserve Study Sections

This Reserve Study includes thirteen sections for you to utilize in the long term planning goals of the Association. They are listed below with descriptions of each:

1.  Reserve Disclosures  - Part 1

Part 1 of the Reserve Disclosures includes the parameters which were used in making calculations in this study and providing a brief summary of the finding related to the percent funded based on the current allocation rate. Information you will find on this page include the number of units, inflation rate, interest rate, current reserve allocation rate, current reserve balance, expected fiscal year start balance and a recommended reserve allocation rate listed under the “Proposed Budget” heading and then broken down to the year, month and per unit.


2.  Reserve Disclosures - Part 2

Part 2 of the Reserve Disclosures lists all building components​ alphabetically by category (e.g. roofing, painting lighting) together with their respective current cost, useful life and remaining life. This list should be thoroughly reviewed by the Client before the final is requested as the inclusion or exclusion of components can impact the current percent funded and the long term expenditures listed in this study.  The Total Current Cost for the Common Area Components is as of the site inspection date and is the accumulative amount for all components should all be replaced as of the site inspection date. Note that this is not the “Fully Funded Balance” which is only a small percentage of this total amount.

3.  Cash Flow Analysis

The Cash Flow Analysis is a breakdown of the findings and recommendations of this study. This page is the most comprehensive in the whole study and should be reviewed annually to determining the allocation rate and expected expenses in the near term and long term future of the community. The headings of this page are explained below: 

​​a.     Fiscal Year - The actual study begins in the fiscal year indicated in Part 1 of the Reserve Disclose Page but also lists the year the site inspection has taken place.

b.     Fiscal Year Start Balance - This expected starting Reserve Balance is provided by the Board

c.     Interest Earned - Based on the annual % assumption listed in the Reserve Disclosures and applied to the expected Reserve Balance (based on recommended allocation rate) in the years covered in this Reserve Study.  

d.     Reserve Allocation Rate (based on the funding strategy used –e.g., Threshold, Statutory, Baseline) - This is the recommended allocation rate based on the funding strategy used and increased annually to keep up with inflation.

e.     Allocation Increase Rate - The % the allocation rate is increased annually; typically in line with inflation estimates. Note that there may be a large increase initially from the current allocation rate. This is typical of many Associations which are poorly funded and need to implement substantial increases to their allocation rate in order to meet expenditure cost estimates.

f.      Special Assessments - Typically will be provided by the Board if any are planned. Rarely will we recommend a special assessment. If there are special assessments, comments in the Preface of this Study as well as the Component Details section will go into detail as to what they will cover.

g.     Disbursements - The estimated total accumulative expenditures for replacement/repair of common area components included in this study in any given year.

h.    Fiscal Year-End Balance - The expected year-end balance in the reserve account after the reserve allocation amount, disbursements, interest and special assessments are taken into account. This is based on the reserve allocation recommended by your Reserve Analysts.

i.      Fully Funded Balance - This is the ideal 100% funded balance in any given year. Note that this is not an amount the equals the total replacement costs of the components but equals an amount which offsets the depreciation to those common area components in any particular year. A reserve balance equal to this amount indicates the Association is well prepared for future expenditures and would be 100% fully funded. Note that this balance increases and decreases over time, taking into account replacement/repair of common area components over time as well as inflation of costs and interest earned on account balances.

j.      Percent Funded – The percent funded the community is based on the expected reserve balance as of the fiscal year start date noted in this study. The recommended allocation amount is then applied to the expected reserve balance and increased annual thereafter at the allocation increase rate. Over time the Percent Funded will increase at a rate that is line with the Funding Strategy (typically 100% funded within 30 years unless otherwise noted).

4.  Yearly Review Chart

The Yearly Review Chart is based on the recommended thirty year projections and data outlined in the Cash Flow Analysis. This chart is an excellent visualization of the data for the fiscal year end balances versus disbursement and the overall percent funded based on the recommended allocation rate over the thirty years covered in this reserve study. Additionally the Baseline Funding Plan (keeps the reserve account above a $0 mark) and corresponding Percent Funded for this funding strategy is included per statutory requirements. The Current Funding Plan and corresponding Percent Funded are included when possible to show the long term impact of following the current funding strategy. Note that often this current funding plan will fall to zero within the 30 years covered in this study.

5.  Category Breakdown Chart

The Category Breakdown Chart shows the allocation percentage of the recommended allocation rate each Category encompasses. This is also a good visual to see where most of the Association’s reserve funds are expected to be implemented in the coming years. Typically one or two categories will have a large percentage of the total recommended allocation.

6.  Disbursement by Year
The Disbursement by Year section of the report details the estimated disbursement, by year, for each component over the 30 years covered in the reserve study. These disbursement amounts are based on actual estimated cost to repair/replace the common area components in any particular year. Note that these are inflated costs and not current costs as inflation increases the expected costs over time. A review of this section of the study on an annual basis is recommended to adequately prepare for expected expenditures in the current or upcoming years.  The total provided at the end of this section is the total expenditures of all included common area components over the 30 years covered in this study. Note that this amount is much higher than the Total Current Costs as it is the accumulative costs of the expected disbursements over the 30 years covered in this study.

7.  Reserve Balance Distribution

The Reserve Balance Distribution section outlines the amount allocated, from the current “fiscal year start balance” to each reserve component, categorized by their respective categories. Depending on the current “percent funded” amount there may not be enough to allocate money to all of the components, in which case the items with the shortest remaining useful life will be funded for first and those with a longer remaining useful life, may not be funded for at all in this first year. The percent allocated from the current “fiscal year start balance” has also been provided for each component that is being funded for. Please note that with an ideal 100% percent funded reserve balance all components would be funded for in this section of the report.

8.  Allocation Breakdown

The Allocation Breakdown section outlines the amount allocated to each component, categorized by their respective categories (alphabetically), from the “Recommended Reserve Allocation Rate”. This reserve allocation rate is broken down to per year, per month and per unit per month for each reserve component. The percent allocated from the totally allocation rate is also provided for each component.

9.  Fully Funded Balance Breakdown - Next Fiscal Year

The Fully Funded Balance Breakdown section shows each component in their respective categories (alphabetically) with current costs, useful life, remaining useful life and the fully funded balance for each reserve component. The “Fully Funded Balance” for each component is based on an ideal 100% funded reserve balance. These reserve components are then totaled to show the total cost for all reserve components as well as the fully funded balance for the next fiscal year. Note that the total costs of the components in this section of the report are slightly higher than the total of the Current Costs in the Reserve Disclosures – Part 2 of this study. This can be attributed to this section of the study for the next fiscal year and subject to inflation over this period of time.

10.  Category Summary – Next Fiscal Year

The Category Summary section breaks down the current total cost and the fully funded balance for each category (sum of reserve components) for the next fiscal year. The useful life and remaining useful life minimum and maximum has also been provided; based on the reserve components in each category. 

11.  Component Details

The Component Details section details each component with pictures (when available), comments, quantity, unit of measure, unit cost, source code (reference to where cost and/or useful life was obtained), the percent of the component being repaired/replaced, contingency percentage and the extended costs (total estimated future cost of the reserve component). Additionally, when applicable, component specific comments on the condition rating and maintenance of the component are included.

12.  Field Report

The Field Report section provides some general comments and advice on care and maintenance of typical reserve components that are large expense items for common interest communities. Following maintenance recommendations will typically lead to longer useful life’s of components and higher aesthetic appeal in the community.

13.  Appendices

This section of the study covers assumptions, calculations, definitions, and disclosures in developing our opinion for a funding strategy we have recommended for your community.  Referring to this section for industry specific terms and calculations helps a reader to better understand the methods, finding s and overall strategy we are recommending.  [TOP]

Keeping Your Reserve Study Current

We believes that funding studies are an essential part of property management.  People and property are constantly changing and evolving.  As a result, the useful life of a funding study is at best a few years. It’s also important to remember this Reserve Study is a fluid document that will change over time along with your community, Association goals, statutory requirements, financing requirements, etc. It is a good idea to have this reserve study updated:

  • At least once a year
  • At substantial changes in interest rates
  • At substantial changes in inflation rates
  • At changes in the number of dues paying members
  • Before starting new improvements
  • Before or after making changes to the property
  • After a flood, fire or natural disaster
  • After the change of ownership or management
  • After Annexation or Incorporation  [TOP]

Special Assessments

Special Assessments will typically been included in the recommended reserve funding strategy, unless specifically noted otherwise. Special Assessments are utilized only as a last resort to fund items which are too costly to be covered by member dues. With proper planning there are few instances that they should be a necessity. [TOP]

Interest, Inflation & Taxes

The reserve study​ has utilized an estimated after tax interest rate on the reserve balance in deposits. This rate has been based on historical averages as well as actual interest rates provided by the association, when available.

Inflation rates included in the study will be been based on historical averages which is the best indicator of the future average over the 30 year period of the study. Inflation rates may be less than or greater than this historical rate, in any specific period of time, but are likely to average out to historical averages over time.  [TOP]

Report Assumptions

The below assumptions have been utilized to come to a well-supported and documented Reserve Study for the Association.

  • Cost estimates and financial information are accurate and current
  • No unforeseen circumstances will cause a significant reduction of reserves
  • Common areas and amenities will be proactively maintained
  • Reserve contributions occur at the end of every calendar month
  • Component Expenses occur at the end of the fiscal year  [TOP]

Items Beyond the Scope the Reserve Analysis Study

This reserve study has been conducted to outline a financial plan for the proper and adequate budgeting of the Association component repair and/or replacement. This report should not be utilized for any other purpose and should not be considered or deemed appropriate or reliable for, but not limited to, any of the following:

  • Building or land appraisals for any purpose
  • State or local zoning ordinance violations
  • Building code violations
  • Soils conditions, soils contamination or geological stability of site
  • Engineering analysis or structural stability of site
  • Air quality, asbestos, electromagnetic radiation, formaldehyde, lead, mercury, or radon
  • Water quality or other environmental hazards
  • Invasions by termites and any or all other destroying organisms or insects
  • Damage or destruction due to pests, birds, bats or animals to buildings or site 
  • Adequacy or efficiency of any system or component on site
  • Specifically excluded reserve items
  • Septic systems and septic tanks
  • Buried or concealed portions of swing pools, pool liners, Jacuzzis/spas or similar items
  • Items concealed by signs, carpets or other things
  • Missing or omitted information supplied by the Association for the purposes of reserve study preparation
  • Hidden improvements such as sewer lines, water lines, or other buried or concealed items  [TOP]


The below disclosures are in accordance with reserve study standards developed by CAI, APRA and statutory requirements for reserve studies completed in Washington State.

  • Invasive Testing
    Estimated life expectancies and life cycles are based upon conditions that were readily accessible and visible at the time of the site visit. We did not destroy any landscape work, building walls, or perform any methods of intrusive/invasive testing during the site visit. In these cases, information may have been obtained by contacting the contractor or vendor that has worked on the property. The physical analysis performed during this site visit is not intended to be exhaustive in nature and may include representative sampling.

  • Representative Sampling
    This study and report is based on observations of the visible and apparent conditions of a reasonable representative sampling of the property’s elements at the time of inspection. Although due diligence was performed during the inspection phase, Reserve Data Analyst, Inc. makes no representations regarding latent or concealed defects that may exist. The inspection did not constitute any invasive investigations and was not intended to determine whether applicable building components, systems, or equipment are adequate or in compliance with any specific or commonly accepted design requirement, building code, or specification. Such tasks as material testing, engineering analysis, destructive testing, or performance testing of building systems, components, or equipment are not considered as part of the scope of work, nor are they considered by the reserve study industry standard.

  • Conflicts of Interests
    As the preparer of this reserve study; Reserve Data Analyst certifies that we do not have any vested interests, financial interests, or other interests that would cause a conflict of interest in the preparation of this reserve study.

  • Reliance on Client & Vendor Data Provided
    Information provided to the preparer of a reserve study by an official representative of the association regarding financial, historical, physical, quantitative or reserve project issues will be deemed reliable by the preparer. A reserve study will be a reflection of information provided to the preparer of the reserve study. The total of actual or projected reserves required as presented in the reserve study is based upon information provided that was not audited. A reserve study is not intended to be used to perform an audit, an analysis of quality, a forensic study or a background check of historical records. A site visit conducted in conjunction with a reserve study should not be deemed to be a project audit or quality inspection. The results of this study are based on the independent opinion of the preparer and their experience and research during the course of their career in preparing Reserve Studies. In addition the opinions of experts on certain components have been gathered through research within their industry and with client’s actual vendors. There is no implied warrantee or guarantee regarding our life and cost estimates/predictions. There is no implied warrantee or guarantee in any of our work product. Our results and findings will vary from another preparer’s results and findings. A Reserve Study is necessarily a work in progress and subsequent Reserve Studies will vary from prior studies.

  • Update to Prior Reserve Studies
    Level II Studies: Quantities of major components as reported in previous reserve studies are deemed to be accurate and reliable. The reserve study relies upon the validity of previous reserve studies. Level III Studies: In addition to the above we have not visited the property when completing a Level III “No Site Visit” study. Therefore we have not verified the current condition of the common area components. It is assumed all prior study component information related to quantities, condition assessments, useful life and remaining useful life are accurate.

  • Assumption Regarding Ongoing Maintenance
    The projected life expectancy of the major components and the funding needs of the reserves of the association are based upon the association performing appropriate routine and preventative maintenance for each major component. Failure to perform such maintenance can negatively impact the remaining useful life of the major components and dramatically increase the funding needs of the reserves of the association.

  • Assumptions Regarding Defect in Design or Construction
    This Reserve Study assumes that all construction assemblies and components identified herein are built properly and are free from defects in materials and/or workmanship. Defects can lead to reduced useful life and premature failure. It was not the intent of this Reserve Study to inspect for or to identify defects. If defects exist, repairs should be made so that the construction components and assemblies at the community reach their full and expected useful lives. We have assumed any and all components have been properly built and will reach normal, typical life expectancies. In general a reserve study is not intended to identify or fund for construction defects. We did not and will not look for or identify construction defects during our site visit.

  • Basis of Cost Estimates
    Pricing used for the repair or replacement costs indicated in this report are derived from a variety of sources, e.g., recent contractor bids received by subject property HOA or prior clients, construction product vendor catalogs, internet, or national construction cost estimating publishers (RS Means / Marshall & Swift). The material and labor pricing provided are estimates and have been augmented, as necessary, to account for specific site conditions (i.e. material handling, scaffolding, etc.). The total expenses represent a useful guideline whereby reserve funds can be accumulated for future repairs and replacements. The estimated repair and replacement expenses, unless otherwise noted, do not include allowances for architectural, engineering, or permitting fees.

  • Limitations on Report Use
    A reserve study is not intended to be used to perform an audit, an analysis of quality, a forensic study or a background check of historical records. A site visit conducted in conjunction with a reserve study should not be deemed to be a project audit or quality inspection. This Reserve Study is provided as an aid for planning purposes and not as an accounting tool. Since it deals with events yet to take place, there is no assurance that the results enumerated within it will, in fact, occur as described. Additionally, other unanticipated expenses may arise that are not included within this reserve study. This reserve study should be reviewed carefully. It may not include all common and limited common element components that will require major maintenance, repair, or replacement in future years, and may not include regular contributions to a reserve account for the cost of such maintenance, repair, or replacement. The failure to include a component in a reserve study, or to provide contributions to a reserve account for a component, may, under some circumstances, require you to pay on demand as a special assessment your share of common expenses for the cost of major maintenance, repair, or replacement of a reserve component.

  • Required Statutory Disclosure - WA RCW 64.34.382
    This reserve study should be reviewed carefully. It may not include all common and limited common element components that will require major maintenance, repair, or replacement in future years, and may not include regular contributions to a reserve account for the cost of such maintenance, repair, or replacement. The failure to include a component in a reserve study, or to provide contributions to a reserve account for a component, may, under some circumstances, require you to pay on demand as a special assessment your share of common expenses for the cost of major maintenance, repair, or replacement of a reserve component.  [TOP]

Written by Joel L Tax - Professional Reserve Analyst - 04/01/2016