Frequently Asked Reserve Study Questions

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1) What are reserves?
Reserves provide the funding necessary to maintain, repair, replace or restore major common area components (such as paint, pavement and roofs) in the future. Ideally, all future reserve item expenditures will be covered by those funds currently set aside in segregated accounts as reserves.

2) What is a reserve study?
The reserve study is a budget planning tool which identifies the current status of the reserve fund and a stable and equitable funding plan to offset the expected future major common area expenditures. The reserve study consists of two parts: the Physical Analysis and the Financial Analysis.

3) In Washington State, do Homeowner and Condominium Associations have to perform a reserve study? In January, 2012 HOA's and Condominium Associations with significant assets must have a reserve study.

4) Does a Condominium or Homeowner association have to commission a reserve study right away?
If they meet the criteria for having a study, they have to comply in 2012.

5) The reserve study looks simple, can we do it ourselves?
No, the law requires that a reserve study professional such as the Reserve Study Analysts from Pacific Crest Reserves perform the study. In reality the reserve study is complex and requires a 30 year outlook. Most association members don't have the background or tools to accurately create the study. Our analysts have construction and building inspection backgrounds. The studies conform to the requirements developed by the Community Associations Imitative (CAI)

6) What is the hardship exclusion, do we qualify?
In the 2012 changes to the law an association with significant assets must have a reserve study. "Significant assets" means that the current total cost of major maintenance, repair, and replacement of the reserve components is 50 percent or more of the gross budget of the association, excluding reserve account funds.

7) What is the physical analysis?
The physical analysis is a component study of the major common area components. It consists of:

component listing
current cost estimate for each component
useful life estimate for each component
remaining life estimate for each component
field report or condition assessment

8) What is the financial analysis?
The financial analysis is a funding study that utilizes information in the physical analysis to determine:

reserve allocation (proposed budget for next fiscal year)

percent funded (strength indicator)

cash flow analysis (projection or forecast- a test of the allocation)

9) What is the reserve allocation?
The reserve allocation is the amount to be annually budgeted towards reserves based on a Funding Plan. The reserve allocation is a significant part of the overall budget, and therefore, considered a critical element of the funding study.

10) What is a funding plan?
The funding plan is a primary part of the financial analysis that consists of a funding method and a funding goal.

11) What funding methods are utilized to determine the reserve allocation?
Various funding methodologies have evolved to determine this allocation, however, the component method dominate most reserve study reports.

12) What is the cash flow method of determining the reserve allocation?
The cash flow method determines reserve allocation by projecting reserve allocations and disbursements over a timeframe of thirty years and testing different allocations until a minimum allocation is found that maintains a Percent Funded or Net Reserve Balance amount above a specified funding goal (perhaps a Net Reserve Balance of zero dollars for Baseline Funding). This method provides for “collective funding” of all components.

13)What are the funding goals established in the plan?
Independent of methodology utilized, the following represents the basic categories of funding plan goals:

Baseline Funding- Maintaining a Net Reserve Balance at or near zero.
Full Funding- Maintaining a Reserve Balance at or near Percent Funded of 100%.
Threshold Funding- Establishing and maintaining a set Net Reserve Balance or Percent Funded.

14) What are the different levels of service provided in a reserve study report?
A) Level 1 Reserve Study (Full)- A Reserve Study in which the following five Reserve Study tasks are performed:

Component Inventory
Condition Assessment (based upon on-site visual observations)
Life and Valuation Estimates
Fund Status
Funding Plan

B) Level 2 Reserve Study (Update, With-Site-Visit/On-Site Review)- A Reserve Study update in which the following five tasks are performed:

Component Inventory
Condition Assessment (based upon on-site visual observations)
Life and Valuation Estimates
Fund Status
Funding Plan

*Note- Updates are reliant on the validity of prior Reserve Studies.

C) Level 3 Reserve Study (Update, No-Site-Visit/Off-Site Review)- A Reserve Study update with no on-site visual observations in which the following three tasks are performed:

Life and Valuation Estimates
Fund Status
Funding Plan

15) How often should a reserve study be conducted?
The state of Washington stipulates a cycle of reserve studies and updates. These necessary updates provide statutory compliance and allow for adjustments due to actual year-end reserve balance and the unpredictable nature of the lives of many of the reserve components under consideration. Professional reserve study analysts have to perform onsite updates at least every three years to be in compliance with the law.

16) How much do reserve studies cost?
There is no set prices as there a number of variables that determine cost: number of units, what common assets are there, age of buildings, location, time of the year and type of study. For a very small association with few assets the price could be as low as $1,500 to $3,500 for a large association with assets such as pools, weight rooms, tennis courts, laundry etc. Prices increase with large assets, of different types, with more history to review and reconstruct, the difficulty factor begins to increase. We prefer to do reserve studies in the slower times and offer discounts and incentives in the "off-season" (Dec - April).

Send mail to rick@paccrestreserves.com with questions or comments about this web site.
Copyright © 2008 Pacific Crest Reserves, LLC
Last modified:10/22/2011
Pacific Crest Reserves is a locally owned Condominium and Home Owner Association consulting company. Our Reserve Study Analysts work with associations to create timely and accurate Reserve Studies. The Pacific Crest Reserves is an experienced consulting firm committed to providing reliable reserve solutions to Associations, regardless of size, complexity or location. We provide easy to understand information for our clients to give them new ways of thinking about how they can best manage their association assets. Our focus is Reserve Studies to associations in the Snohomish, Skagit, Island and San Juan Counties.