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WHAT IS A RESERVE STUDY?

The Community Associations Institute, CAI, a non-profit association created in 1973 to educate and represent the nation's growing number of community associations, condominium associations, homeowner associations and cooperatives, defines a reserve study as a combination of:

(1) The information about the physical status and the repair/replacement cost of the major common area components the association is obligated to maintain (Physical Analysis), and

(2) The evaluation and analysis of the association's Reserve balance, income, and expenses (Financial Analysis)

In 1998, the CAI established new National Reserve Study Standards. The new standards include a list of tasks that must be performed in each of three levels of service, minimum contents that must be included in each study, required disclosures, and terms and definitions.

WASHINGTON STATE SENATE BILL 6215 EFFECTIVE JUNE 12, 2008

On June 12, 2008, Washington State Senate Bill 6215 became effective, requiring all condominium associations have reserve studies prepared and establish reserve accounts. Specifically, the new law:

• Encourages associations to establish a reserve account to fund major maintenance, repair, and replacement of common elements, including limited common elements that will require major maintenance, repair, or replacement within thirty years. The reserve account shall be established in the name of the association. The board of directors is responsible for administering the reserve account.
• Provides that associations shall prepare and update a reserve study. The initial reserve study must be based upon a visual site inspection conducted by a reserve study professional.
• Provides that associations shall update the reserve study annually. At least every three years, an updated reserve study must be prepared and based upon a visual site inspection conducted by a reserve study professional.

WHY HAVE A RESERVE STUDY COMPLETED?

The association's Board of Directors has a fiduciary responsibility to maintain the community in a good state of repair, and protect owners from financial hardship. Current legislation in many states requires disclosure of reserves every year within the pro forma operating budget. An increasing number of banks are requesting a copy of the association's reserve study for first and second mortgage applications of individual homeowners. A proper Reserve study will:

• Protect the Board of Directors from personal liability concerning adequate reserve funding
  
• Eliminate uncertainty of over-funding or under-funding reserves
  
• Maintain the community in a good state repair
  
• Establish a fair & stable contribution for current and future owners
  
• Comply with the American Institute of CPA's (AICPA) annual audit requirements
  
• Maintain higher individual resale values
  
• Reduce the risk of special assessments or borrowing
  
  

WHO SHOULD YOU HAVE PERFORM THE STUDY?

To ensure that your association has as accurate a reserve budget as possible, the person selected to perform the study should be knowledgeable of construction materials and methods, possess good budgeting skills, and have an understanding of the association's operations. In addition, preparation of the study should be in accordance with the CAI's published guidelines.

Washington State Senate Bill 6215 defines a Reserve Study Professional as “an independent person suitably qualified by knowledge, skill, experience, training, or education to prepare a reserve study” in accordance with the new law.

David Bach & Associates LLC has earned the Community Associations Institute's Reserve Specialist Designation, the only national credential for community association reserve study providers. The RS designation is awarded to experienced, qualified professionals who help condominium, cooperative, and homeowner associations plan for long-term repair and replacement of major components. The Reserve Specialist Designation Review Board recognizes David Bach's professionalism and dedication to the highest standard of reserve study preparation. RS designees must adhere to CAI's Professional Reserve Specialist Code of Ethics.

David Bach & Associates LLC offers a professional assessment of the condition, useful life, remaining useful life, and replacement cost of the common area components that the association has an obligation to maintain; an accurate financial analysis of the current reserve; and sound recommendations on the financial contributions necessary to ensure that funds will be available when needed.

In accordance with the new Washington State law, our reserve studies include:

1. A reserve component list, including quantities and estimates for useful life of each reserve component, and current repair and replacement cost for each component.
2. The date of the study and a statement that the study meets the requirements of the new law.
3. The level of study performed:
   • Level 1: Full study funding analysis and plan
   • Level 2: Update with visual inspection
   • Level 3: Update with no visual inspection
4. Association’s reserve account balance.
5. Percentage of the fully funded balance that the reserve account is funded.
6. Special assessments already implemented or planned.
7. Interest and inflation assumptions.
8. Current reserve account contribution rate.
9. Recommended reserve account contribution rate.
10. Projected reserve account balance for 30 years and a funding plan to pay for projected costs from those reserves without reliance on future unplanned special assessments.
11. Whether the reserve study was prepared with the assistance of a reserve study professional.
12. The following disclosure: “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 my 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.”

Three levels of Reserve Study Funding Analysis and Plans are available.

LEVEL 1. FULL RESERVE STUDY FUNDING ANALYSIS & PLAN

• Component inventory
  
• Condition Assessment (based on site visual observations)
  
• Life and Valuation Estimates
  
• Fund Status
  
• Funding Plan
  
  

LEVEL 2. UPDATE, WITH SITE VISIT/ ON-SITE REVIEW

• Component Inventory (verification only, no quantification)
  
• Condition Assessment (based on on-site visual observations)
  
• Life and Valuation Estimates
  
• Fund Status
  
• Funding Plan
  
  

LEVEL 3. UPDATE, NO SITE VISIT/ OFF-SITE REVIEW

• Life and Valuation Estimates
  
• Fund Status
• Funding Plan
  
  

223 Taylor Avenue North Suite 110 Seattle, WA 98109 Phone: (206) 694-1777 Fax: (206) 694-1778		2080 NW Everett Street Suite 202 Portland, OR 97209 Toll free: (888) 718-2224 Phone: (503) 224-6565 Fax: (503) 224-8585
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