Reserve Studies
Washington State’s reserve study law RCW 64.34.380:
- 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?
In addition to the requirements of RCW 64.34.380, 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 require 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 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.
RCW 64.34.020 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.
What is inclulded in a reserve study?
In accordance with RCW 64.34.380, our reserve studies include:
- A reserve component list, including quantities and estimates for useful life of each reserve component, and current repair and replacement cost for each component.
- The date of the study and a statement that the study meets the requirements of the new law.
- 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 - Association’s reserve account balance.
- Percentage of the fully funded balance that the reserve account is funded.
- Special assessments already implemented or planned.
- Interest and inflation assumptions.
- Current reserve account contribution rate.
- Recommended reserve account contribution rate.
- 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.
- Whether the reserve study was prepared with the assistance of a reserve study professional.
- 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."
