A reserve study has two halves. Check both are there.
A study prepared to the National Reserve Study Standards has a physical side and a financial side. A document containing only one of them is not a reserve study.
The physical analysis is the inventory and condition side. The component inventory is the list of what the association must reserve for, built from site observation, association records, construction drawings and prior studies. The condition assessment evaluates each component's present state, from which the preparer derives its useful life, its remaining useful life and an estimated current replacement cost.
The financial analysis is the money side. Fund status establishes where the fund stands today — the actual balance and its relationship to what an ideally funded association would hold, which is where percent funded is calculated. The funding plan sets out the recommended contribution stream over the study horizon, commonly twenty to thirty years, with any planned special assessments, the assumed inflation and interest rates, and the projected year-by-year balance.
A document performing only the physical work is a condition assessment. One performing only the financial work is a funding projection built on somebody else's component list, and it inherits every error in that list. Confirm both halves are present, and that the study says which it is.
Three levels, and two separate clocks
The standards recognise three service levels. The distinction is not about the quality of the arithmetic — it is about how much of the underlying data was freshly observed and how much was carried forward.
- Level I, a full study. The component inventory is built from scratch and there is a site visit. Appropriate for a first study, after a major change to the property, or when prior data is stale.
- Level II, an update with site visit. The existing inventory is verified against the property — periodic re-grounding of a study that already exists.
- Level III, an update without site visit, also called an off-site or desktop update. The inventory is carried forward and nobody visits; costs, balances and assumptions are refreshed.
A Level III update is only as good as the study it updates. A long chain of desk updates with no site visit is a warning sign rather than a compliance record, and it is the most common way a healthy-looking study ends up describing a building that no longer exists.
This is why the two clocks matter. Many statutes and governing documents set a maximum interval between studies and a separate maximum interval between site visits. California states it most clearly: under Civil Code §5550 the board must cause a reasonably competent and diligent visual inspection at least once every three years, and must review the study annually. Ask for the date of the last site visit — it is frequently years earlier than the date on the report cover, and the report will not volunteer it.
Full, threshold, baseline — and why pooled is not a funding level
The physical analysis can be identical across every funding philosophy. The recommended contribution will not be.
Full funding
Targets a reserve balance at or near 100 percent funded, equal to accumulated deterioration at any given moment. The most conservative model: the highest current contribution, the lowest probability of a future special assessment.
Threshold funding
Targets a floor the board chooses — expressed either as a dollar amount or as a percent-funded level — and keeps the balance above it. A deliberate middle position, and whether it is conservative or aggressive depends entirely on where the floor sits. The phrase threshold funded on its own tells a buyer nothing. Ask what the threshold is.
Baseline funding
Targets only keeping the reserve cash balance above zero across the study horizon: never running out, never accumulating a cushion. Lowest contribution, highest exposure. Any component that fails earlier or costs more than projected has to be met by a special assessment or by borrowing, because there is no buffer to absorb the variance. A baseline plan can be entirely statute-compliant and still leave owners badly exposed — which matters directly in Florida, where the structural study must include a baseline funding plan keeping projected cash balances positive.
Pooled, or cash-flow, accounting
This is an accounting methodology, not a funding target, and treating it as one is a common misreading. Rather than tracking a sub-account per component, the pooled method treats reserves as a single fund and tests whether the pooled balance can meet the aggregate expenditure schedule across the horizon. It generally supports a lower contribution than straight-line accounting for a similar risk profile, because a surplus on one component offsets a shortfall on another. The policy consequence is real: under straight-line accounting, spending roof money on elevators is a problem; under pooled accounting it is the design. A study can be pooled and baseline, or pooled and fully funded — the two questions are independent.
How percent funded is built
Percent funded compares what the association has against what it should have at this moment. The numerator is simple: cash and investments actually held in the reserve fund on the study date. The denominator carries all the analytical weight.
The fully funded balance is the sum, across every reserve component, of the fraction of that component's life already consumed multiplied by its current replacement cost. Effective age is useful life minus remaining useful life; a component's share is its effective age divided by its useful life, multiplied by current replacement cost. Add the shares and divide the actual balance by the total.
Round numbers, purely to show the arithmetic: a roof with a twenty-year useful life and fifteen years remaining has an effective age of five years. Five divided by twenty is a quarter, so that roof contributes a quarter of its replacement cost to the fully funded balance.
Four cautions follow from the formula, and each matters more than the resulting percentage.
- It is a snapshot, not a trend. An association at 45 percent and rising is in a materially different position from one at 45 percent and falling. Ask for the figure from the last three studies.
- It depends entirely on the component list. Omit a major component and the denominator is understated and the percentage flattered — which is precisely why Florida legislated a prescribed component list for structural items.
- It depends on replacement-cost assumptions. Costs estimated years ago and never re-grounded understate the denominator the same way.
- A high percentage paired with a baseline plan is unstable. The percentage is backward-looking and the funding plan is forward-looking. Read them together.
The 30 and 70 percent bands are convention, not a rule
Almost every discussion of reserves repeats the same three bands: above roughly 70 percent funded is strong, 30 to 70 percent is fair, below 30 percent is weak. They are long-standing and a reasonable rough prior for triage.
They are also not a standard of any kind. The 30 and 70 percent bands are industry convention, repeated across reserve-study practice and adjacent trade material. They are not a statutory threshold in any state, not a rule of any federal or state agency, and not an underwriting test used by any mortgage agency or secondary-market purchaser. No lender declines a project because it fell below 30 percent, and no statute requires 70. Any source that presents them as a requirement — or that implies a project "fails" below a band — is describing a convention as though it were law.
Two consequences worth carrying:
- They are not comparable across studies with different component lists. Because the denominator is constructed rather than observed, the same association can sit in two different bands depending on which components its preparer included and how recently costs were re-grounded. Comparing two buildings' percentages without comparing their component lists is not like-for-like.
- Most associations sit in the middle band, and that is ordinary. A moderate percentage attached to a credible funding plan, a recent site visit and a board that acts on the study is a normal condition, not a red flag.
Who prepares one, and what qualifies them
There is no single national licence to prepare a reserve study: qualification is set by state statute where one exists, by the governing documents, and otherwise by market practice. Two designations dominate. RS, Reserve Specialist, is awarded by the Community Associations Institute; PRA, Professional Reserve Analyst, by the Association of Professional Reserve Analysts. Both require a minimum number of completed studies, relevant credentials or experience, and adherence to the awarding body's standards. The specific numeric requirements are set by those bodies and change, so check them with CAI and APRA directly rather than taking them from any third-party page, including this one.
Those credentials matter beyond marketing because statutes name them. Florida's Structural Integrity Reserve Study requires the visual inspection portion to be performed or verified by an engineer licensed under Chapter 471, an architect licensed under Chapter 481, or a holder of the RS or PRA designation — admitting both design professionals and reserve credential holders, because the exercise has an engineering dimension and a financial one. Maryland's 2022 reserve study law is reported to set a qualification test in similar terms.
Independence is worth asking about even where it is not required. The most useful studies are prepared by a party with no financial interest in the repair work recommended. Outside specific statutory contexts that is best practice rather than law, though Florida has legislated in that direction for milestone inspections.
What to ask for, and what a good study admits
Five requests characterise an association's position better than the headline percentage.
- Percent funded, and the same figure from the two prior studies.
- The funding model — full, threshold or baseline — and the accounting method, pooled or straight-line.
- The level of study: I, II or III.
- The date of the last site visit or visual inspection, not the date of the last report.
- The projected reserve balance in the year of the next large scheduled expenditure.
Then read the document for what it concedes. Three markers separate a competent study from a merely compliant one.
It states its own limitations. A well-written study says what the preparer could not see and what further investigation is recommended — a moisture survey where a roof nears the end of its life, a plumbing condition assessment where material and age warrant it. A study with no stated limitations is either extraordinarily thorough or not being candid about the visual basis of the exercise.
It segments. A single line for "roof" in a building with five roof areas of three different ages is less useful than five lines.
It treats age as an input, not an answer. Two identical components installed on the same day can be in completely different condition depending on exposure, drainage, maintenance and workmanship. Remaining useful life is presented as a number, which conveys a precision the underlying judgement does not have.
Common questions
What does percent funded mean?
Percent funded is the actual reserve balance divided by the fully funded balance — the sum, across every component, of the fraction of its life already consumed multiplied by its current replacement cost. It measures how much of the deterioration that has already occurred is covered by money the association actually holds. It is a snapshot on the study date, not a forecast and not a solvency test.
Is 70 percent funded good?
By convention it is treated as a strong position, but the 30 and 70 percent bands are industry convention only. They are not a statutory standard, not an agency rule, and not an underwriting threshold used by any mortgage purchaser. The trend across the last three studies, the funding model, and the date of the last site visit tell you more than the band does — and the percentage itself is only comparable between two buildings whose component lists are comparable.
How often should a reserve study be updated?
It depends on state law and the governing documents, and two separate intervals usually apply: how often the study is updated, and how often somebody physically inspects the property. California requires a visual inspection at least once every three years under Civil Code §5550, with the board reviewing the study annually. Where no statute applies, the practical test is whether the component data still describes the building — a study more than a few years old, in a property that has had work done, is describing a building that no longer exists.
What is the difference between a Level I, II and III reserve study?
Level I builds the component inventory from scratch and includes a site visit. Level II verifies an existing inventory against the property and includes a site visit. Level III carries the inventory forward from the prior study with no site visit, refreshing costs, balances and assumptions from a desk. Level III is only as reliable as the study it updates, so a long run of Level III updates with no intervening site visit is a warning sign rather than evidence of compliance.
Who is qualified to prepare a reserve study?
There is no national licence. Qualification is set by state statute where one exists, otherwise by the governing documents and market practice. Two credentials dominate: the Reserve Specialist designation from the Community Associations Institute and the Professional Reserve Analyst designation from the Association of Professional Reserve Analysts. Florida names both in statute for its structural study, alongside engineers licensed under Chapter 471 and architects licensed under Chapter 481.
Does a reserve study tell me whether the structure is sound?
No, and it is important not to read it that way. A reserve study is a funding instrument based on visual observation. Structural deterioration is predominantly concealed: delamination is invisible until concrete spalls, reinforcement corrodes inside concrete long before anything shows, and cover depth, chloride content and carbonation depth cannot be observed at all. Determining structural condition requires a structural inspection by a licensed engineer, which is a different engagement with different methods.