Should I Buy a Condo With an Underfunded Reserve Study?

A reserve study exists for this building — but it uses words like "underfunded," or shows the association saving less than its own funding plan recommends, and you are trying to work out whether that is normal or a reason to pause. An underfunded study is a real risk to understand — but the percentage on the cover page tells you far less than the pages behind it.

Be clear about which situation you are in. This page is about a study that exists and shows funding below its own recommendation. That differs from simply low reserves — a thin balance the study may still consider on-track — and from no reserve study at all, where there is no recommendation to measure against. For the fundamentals, see how to read a reserve study and the reserve studies guide.

The quick answer

It depends on the timeline and the plan. "Underfunded" means the association has saved less than its reserve study's funding plan calls for. That matters most when major components are due soon and the plan does not cover them — and matters far less when the big-ticket items are years away and contributions are rising.

Do not rely on the percent-funded number alone. Reserve specialists often treat figures below roughly 30% as a warning range, but a building that is 25% funded with no major repairs for a decade is in better shape than one at 45% funded with a roof replacement next year. The component list and timeline are what turn the percentage into a real picture.

Read the study together with the budget and minutes. The study says what is coming; the budget says whether the association is funding it; the minutes say what the board actually plans to do. This page is general information, not financial or engineering advice.

When an underfunded study may be okay

• Major components are years out. Plenty of runway means contributions can catch up before the big spends.
• There is a credible, written catch-up plan. A board following a multi-year plan to raise reserves is managing the gap.
• Contributions are rising in the budget. A growing reserve line shows the plan is real, not aspirational.
• The study is current and its assumptions are realistic. A recent study with sensible cost and useful-life estimates is more trustworthy.
• The shortfall is disclosed and priced in. A known gap reflected in the deal is a risk accepted knowingly.

When an underfunded study is a serious red flag

• Major repairs are due soon with little saved. A near-term roof, elevator, or structural project against a thin balance usually means an assessment or loan.
• Repeated reserve waivers. In states that allow it, a waiver pattern in the minutes signals chronic underfunding.
• Stale study assumptions. Outdated costs or optimistic useful-life estimates can hide the true gap.
• Flat contributions despite the shortfall. If the study flags underfunding and the budget does not respond, the gap is widening.
• The board has no plan. Underfunding plus silence in the minutes is the combination to worry about.

Documents to check

• Reserve study — full study and any update without site visit
• The study's component list with useful-life and remaining-life columns
• Operating budget and reserve contribution line
• Year-end financial statements
• Meeting minutes — at least 24 months
• Any board-adopted reserve funding plan
• Special assessment notices, if any

What to look for in the documents

• "Percent funded" and its trend over recent years
• "Baseline funding" vs. "full funding" plan
• "Underfunded," "deferred maintenance," and "deferred" components
• "Waived reserves" or "reserve waiver"
• "Special assessment" or "capital project" discussions in the minutes
• The study date — older than three to five years deserves scrutiny
• Useful-life and remaining-life columns for the roof, elevators, envelope, and mechanicals

Questions to ask the seller, board, or your agent

• How does the board plan to close the funding gap, and is the plan in writing?
• Are reserve contributions scheduled to rise?
• When was the reserve study last fully updated, with a site visit?
• Which components are due in the next one to five years?
• Are any special assessments under discussion in the minutes?
• Has the association considered a reserve loan?
• Can the review period be extended if the study or minutes are incomplete?

When to slow down or escalate

Slow down if major repairs are imminent and the funding plan does not cover them, or if the study is stale and the minutes show no plan. That is worth escalating before you waive conditions — it may justify requesting an updated study, a reserve specialist's review, a price adjustment, or lender confirmation that the reserves satisfy financing requirements. If the study is materially incomplete as your deadline nears, do not treat it as a formality.

For a fast directional grade, use the reserve fund health checker; for the mechanics, see how to read a reserve study and the reserve studies guide. If the building has no study at all, see should I buy a condo with no reserve study.

How this varies by state

Whether a study is even required — and how realistic it must be — varies by state. Florida mandates reserve funding for structural components and periodic studies for many associations; Washington requires studies under WUCIOA; Ohio lets owners waive the reserve requirement annually; and states like Texas and Arizona leave it largely voluntary. The reserve fund rules comparison shows how three large states differ. Confirm the rule where you are buying.

Get a free read before your review window closes

Not sure how serious the underfunding is? Upload the reserve study and budget and CondoSignal will flag the gap, the deferred components, and the assessment risk — every finding linked to the page — for a free review. See a sample report to preview the output.