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? Although it is highly recommended that all homeowner associations maintain common areas reserve studies, the new law is limited to condominium associations (this includes cooperatives that are also condominiums).

4) Does a condominium association have to commission a reserve study right away?
  Although its not stated in the law, we believe an association has up to 12 months from the effective date of the law (6/12/08) in order to complete an initial or updated reserve study.  Thus, an association should have ample time to adequately research the marketplace for a reserve study consultant who fits the association's specific needs. 

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?
If the cost of the initial study is more than 10% of your annual costs then you may qualify for hardship. However you may still want to have the study done. Call us for more information.

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

 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, straight-line and cash flow methods 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:

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:

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

    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:

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).

 

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Copyright © 2008 Pacific Crest Reserves, LLC
Last modified: 11/04/08 

Pacific Crest Reserves is a locally owned company providing reserve studies, commercial inspection and condo inspections in the Mount Vernon, Wa. area. Pacific Crest Reserves is licensed by Washington State and employs Reserve Analysts that meet or exceed the requirements set by Community Association Institute.  Pacific Crest Reserves conducts their Washington State building  inspections according to the National Association of Home Inspectors Standards of Practice & Code of Ethics. Our professional standards provide a minimum guideline for conducting a Anacortes Washington Reserve Study.