Guide
Reserve studies
A reserve study tells you what the association expects to spend on long-term capital repairs and replacements, and whether it is funding those obligations adequately. Reading the study without also reading the actual reserve balance, the current budget's contribution line, and recent meeting minutes is the single most common mistake in condo due diligence — and the one most likely to produce an expensive surprise after closing.
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What a reserve study is and what it contains
A reserve study is an engineering and financial document prepared by a credentialed reserve analyst or engineer. It serves two functions. The physical analysis inventories the association's long-lived common components — roof, HVAC systems, elevators, plumbing stacks, parking structure, pool equipment, fencing, exterior painting, and similar items — estimates the useful remaining life of each, and projects the replacement cost in current or future dollars. The financial analysis takes those projections and produces a recommended annual contribution rate that, if followed, would result in the association having funds available when each component reaches end of life. The output is a funding plan — typically one of two types. A fully funded plan targets keeping the reserve balance equal to the full depreciation of all components at all times. A baseline (or threshold) funded plan targets keeping the balance above zero throughout the projection period, allowing the balance to dip toward zero before major expenditures. The difference between these two approaches is significant: a fully funded plan requires higher annual contributions but provides more financial cushion; a threshold plan keeps contributions lower but leaves less margin if replacement costs exceed projections or if multiple components fail sooner than expected.
What percent funded means and how to interpret it
The percent funded figure is the single most widely used measure of reserve adequacy. It expresses the current reserve balance as a percentage of the fully funded target — the amount the association would theoretically need on hand if every component were replaced today proportionate to its age and the association's share of the cost. A percent funded of 100 percent means the reserve balance exactly matches the depreciation of all components. A percent funded of 50 percent means the balance is halfway to that target. Industry guidance from the Community Associations Institute generally treats 70 percent funded or above as strong, 30 to 70 percent as moderate but warranting review, and below 30 percent as weak — indicating meaningful risk of special assessment or deferred maintenance. The Champlain Towers South condominium in Surfside, Florida, had a reserve funded percentage estimated at approximately 6.9 percent in the years before the 2021 collapse, against a documented capital need exceeding $10 million. That extreme case illustrates the endpoint of long-term reserve neglect, but the underlying pattern — a low percent funded, deferred capital projects, and rising repair needs — is common in older associations across the country. The percent funded figure is a useful starting point, but it is not the whole picture. Trends matter: a building that was 45 percent funded three years ago and is now 38 percent funded is moving in the wrong direction, even though the snapshot looks moderate. The mix of upcoming components also matters: an association at 35 percent funded with no major replacements due for ten years is in a different position from one at 35 percent funded with a roof replacement due in two years.
Reading the reserve study against the actual reserve balance
The study provides the benchmark. The actual reserve balance tells you where the association stands against it. These two numbers should be compared before you draw any conclusions. Associations sometimes carry a reserve study that describes a healthy funded percentage while collecting less than the recommended contribution — meaning the gap between the study and reality is widening. Check the most recent reserve study's recommended annual contribution against the operating budget's actual reserve line item. If the budget shows the association collecting $90,000 per year when the study recommends $160,000, the gap is $70,000 per year. Over five years, that is $350,000 of deferred reserve funding that someone will eventually have to cover — either through future dues increases or a special assessment. Also check whether the reserve balance trend over three to five years of financial statements is increasing, flat, or declining. A declining balance in a growing building with aging components is a red flag regardless of what the percent funded calculation shows at any single point in time.
The component list: what to look for in major capital items
Not all components carry equal financial significance. In reviewing a reserve study, pay particular attention to the components with large replacement costs and relatively short remaining useful life. For a mid-rise condominium, these typically include the roof assembly, elevators and mechanical systems, plumbing stack replacements, waterproofing systems, parking structure repairs, HVAC equipment, and the building envelope. For a low-rise community, focus on the roof, pool and amenity systems, and shared infrastructure. The study should provide a useful remaining life estimate for each major component. If a $600,000 roof has three years of useful life remaining and the reserve fund contains $150,000, the arithmetic suggests a likely special assessment regardless of the percent funded figure. Ask whether the component list is comprehensive — a study that omits structural elements or underestimates replacement costs will produce an artificially healthy funded percentage.
Florida SIRS and the post-Surfside reserve mandate
Florida's Structural Integrity Reserve Study, created by SB 4-D (2022) and refined by SB 154 (2023), is the most significant reserve-related legislative change in the United States in recent years. The SIRS applies to condominium and cooperative buildings three or more stories in height that are 30 or more years old (25 years for buildings within three miles of the coast). Unlike a traditional reserve study, the SIRS specifically focuses on load-bearing structural elements — the components most relevant to building safety — and requires associations to fund reserves for those elements at levels that cannot be waived or reduced by member vote. Associations that previously waived or minimized reserve contributions through annual member votes were required to come into compliance with the new mandatory funding levels by December 31, 2024. Many associations faced significant dues increases, special assessments, or both to reach compliance. A buyer looking at a Florida building three stories or taller should request the SIRS report specifically and ask how the association's reserve contribution has changed since 2022 in response to the new requirements.
How reserve study requirements vary by state
Florida's post-Surfside legislative framework is currently the most demanding in the country. For condominiums three stories or taller and 30 or more years old, reserve studies must be conducted and the SIRS components must be funded at levels that cannot be waived. Traditional reserve studies are required every three years under Chapter 718. Texas imposes no statutory reserve study requirement for either condominiums or HOAs. An association's reserve balance must be disclosed in the resale certificate, but the adequacy of that balance is not independently verified by any mandatory study. Arizona's ARS 33-1260 requires the disclosure of the reserve account balance to buyers but does not mandate a study or impose a minimum funded percentage. Washington State requires reserve studies for common interest communities. Colorado has recently moved toward stronger reserve study requirements for associations with significant structural elements. Nationally, buyers in states without mandatory studies must supply their own context — either by requesting a voluntary study if one exists, or by independently evaluating the reserve balance against the building's age and component replacement timeline.
Reviewer's checklist
- Reserve study obtained and study date confirmed (ideally within the past three years)
- Funding type identified: fully funded plan versus threshold or baseline funded plan
- Percent funded calculated: current reserve balance divided by fully funded target
- Reserve balance trend reviewed across three to five years of financial statements
- Budget reserve contribution line compared to study's recommended annual contribution
- Component list reviewed for major items with short remaining useful life and large replacement cost
- Any upcoming large replacement (roof, elevators, HVAC, waterproofing) identified and timeline noted
- For Florida buildings 3+ stories at 30+ years old: SIRS obtained and compliance status confirmed
- Meeting minutes reviewed for reserve funding discussions, contribution rate changes, or waiver votes
- Any history of reserve waiver votes confirmed and impact on current balance assessed
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By state
Reserve studies — state-specific guidance
The general framework on this page applies nationally. State law adds specific requirements buyers and owners should verify.
FAQ
Frequently asked questions
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Reserve studies, audit findings, attorney memos, milestone inspections — CondoSignal produces a free, structured review with page citations your board can act on. No cost to the association.