CCS CCS Reserve Studies & Capital Planning 1 — Questions and Answers
Question 1: What is the primary purpose of a reserve study for a condominium association?
- To determine the market value of each unit
- To project long-term repair and replacement costs for major common components and ensure adequate funding (Correct answer)
- To set rental rates for common area leases
- To calculate the association's annual tax liability
Correct answer: To project long-term repair and replacement costs for major common components and ensure adequate funding
A reserve study analyzes the condition and remaining useful life of major common components to determine how much money the association must save to fund future replacements.
Question 2: Which funding method for reserves calculates a single contribution rate that keeps the reserve fund solvent over a long period without dramatic fluctuations?
- Component method (straight-line)
- Threshold funding
- Full funding
- Percent-funded method (Correct answer)
Correct answer: Percent-funded method
The percent-funded (or baseline/threshold) method sets contribution levels to maintain the fund above a target minimum balance rather than fully funding every component individually.
Question 3: A reserve study's 'component inventory' section identifies all major components by listing their:
- Purchase price and depreciation schedule only
- Current condition, estimated remaining useful life, and current replacement cost (Correct answer)
- Manufacturer warranties and insurance values
- Tax basis and salvage values
Correct answer: Current condition, estimated remaining useful life, and current replacement cost
The component inventory documents each major item's physical condition, how many years of useful life remain, and the estimated cost to replace it when the time comes.
Question 4: What does the term 'percent funded' indicate in a reserve study?
- The percentage of units whose owners have paid their assessments
- The ratio of actual reserve fund balance to the fully funded balance, expressed as a percentage (Correct answer)
- The portion of the annual budget allocated to reserves
- The percentage of components that have been recently replaced
Correct answer: The ratio of actual reserve fund balance to the fully funded balance, expressed as a percentage
Percent funded compares the association's current reserve balance to what it would need to be fully funded for all components at their current age, expressed as a percentage.
Question 5: According to best practices, a reserve study should be updated at minimum:
- Every ten years regardless of conditions
- Every five years with a site visit, and reviewed annually without a site visit (Correct answer)
- Only when a major component fails
- Whenever the board requests a new budget
Correct answer: Every five years with a site visit, and reviewed annually without a site visit
Best practices recommend a full reserve study update with a physical site inspection every three to five years, with annual reviews to adjust for inflation and spending variances.
Question 6: Which professional designation is most commonly associated with conducting a credible reserve study for a condominium association?
- Certified Public Accountant (CPA)
- Reserve Specialist (RS) from CAI or Professional Reserve Analyst (PRA) (Correct answer)
- Licensed General Contractor
- Certified Property Manager (CPM)
Correct answer: Reserve Specialist (RS) from CAI or Professional Reserve Analyst (PRA)
The Reserve Specialist (RS) credential from the Community Associations Institute and the Professional Reserve Analyst (PRA) from APRA are the recognized designations for reserve study professionals.
CCS CCS Reserve Studies & Capital Planning 1
What is the primary purpose of a reserve study for a condominium association?