Disconnects in the Reserve Studies Process – Why Reserve Studies Often Miss the Mark

Gary Porter, FMP, RS, RRC, CPA                                                                                                                                         April 2026

Many in the industry have expressed frustration with the reserve study process.  This article explores the disconnects that exist in almost all reserve studies.  As discussed below many of these disconnects can be overcome with proper thought and planning.  One thing that can never be overcome in the reserve study process is this – “The reserve study is a series of assumptions and estimates about future events, 100% of which will prove to be wrong.”  That is a bold declaration but simply recognizes the fact that no one has a crystal ball, no one can see the future precisely.  The purpose of the reserve study is to refine those assumptions and estimates to reduce the risk of inaccuracies.  Generally, those events that are relatively near term can be predicted with relative accuracy.  That accuracy level diminishes the further into the future you look.

Reserve studies are widely relied upon as long-term financial planning tools for common interest developments. Yet dissatisfaction with their results is more common than many professionals openly acknowledge. Boards question recommendations, managers struggle to reconcile competing studies, and stakeholders are often left wondering why two reserve studies for the same property can produce dramatically different results.

These inconsistencies are not random — they are the product of systemic disconnects in how reserve studies are defined, developed, and used.

The Policy Vacuum: When Assumptions Replace Direction

One of the most fundamental breakdowns in the reserve study process is the absence of clearly defined policies from the association. When boards do not establish parameters, the reserve professional must effectively create them.

This includes decisions about:

  • Component inclusion
  • Funding philosophy
  • Acceptable risk levels

As a result, the study reflects the preparer’s assumptions rather than the association’s intent. Two qualified professionals, given the same property but no policy direction, can—and often do—arrive at very different conclusions.

The RFP Process – Selecting a Reserve Professional

The majority of associations simply reach out to several reserve professionals and request a bid.  The drawback of this approach is that it limits consideration of the qualifications of the reserve professionals and what they can offer the association and instead puts the focus solely on price.  We find that this is the approach used by far too many associations who do not view the reserve study as a strategic long term planning tool but instead see it as a compliance obligation.

A smaller number of associations will go through an extensive written request for proposal process.  The purpose is to attempt to create for themselves a more objective comparison of the proposals from various reserve professionals.  But there is also a significant downside to this approach.  This limits the reserve professional’s ability to accurately inform the association of their specific expertise and offerings for the association.  In other words, it stifles innovation to the point that the association may never understand what it COULD have because it has so narrowly defined what it wants.  Those who prepare these detailed RFP’s often don’t have the experience or level of knowledge to understand what options exist.  As a result the association can actually lose more with a detailed RFP than it could ever gain with a different approach.

A better approach for an association is to not dictate requirements of the reserved professional but instead focus on describing (a) what the association offers and (b) the desired outcome of the reserve study engagement.  Engage in a dialogue with the reserve professional to determine if there are any offerings from their company that competitors may not offer. 

Component Selection: Thresholds and Long-Lived Assets

Deciding what goes into a reserve study is not as straightforward as it seems. Many studies rely on a dollar threshold to determine which components are included. While practical, this approach introduces inconsistencies:

  • Smaller components may be excluded, creating hidden liabilities
  • Assets below the threshold are often not tracked in any systematic way

A more complex—and often overlooked—question involves long-lived infrastructure systems such as plumbing and electrical distribution. These components may have useful lives extending 40–70 years or more, and in some cases are assumed to “last the life of the building.”

This raises critical questions:

  • Should these assets be included and funded over long horizons?
  • Should they be excluded due to uncertainty in timing and cost?
  • If excluded, how are future replacement obligations addressed?

There is no universal standard, and differing answers to these questions are a major source of variation between reserve studies.

Funding Methods vs. Funding Goals: A Critical Distinction

One of the most misunderstood aspects of reserve studies is the difference between funding methods and funding goals.

Funding methods refer to how contributions are calculated:

  • Component method: Each asset is funded individually
  • Pooled method: Assets are grouped, and funding is based on overall cash flow

Funding goals, by contrast, define the target level of reserve strength:

  • Baseline funding: Cash never falls below zero
  • Threshold funding: Cash maintains a minimum balance
  • Full funding: Reserves are maintained near 100% of deterioration

These concepts are often conflated, yet they serve entirely different purposes. An association could use a pooled method with a full funding goal—or a component method with a baseline goal—and the results would differ significantly.

When boards do not explicitly define both the method and the goal, the reserve preparer makes those decisions, often without full alignment with stakeholder expectations.

Financial Assumptions: Small Inputs, Big Differences

Even when component lists are identical, reserve studies can diverge significantly based on financial assumptions.

Key variables include:

  • Interest rates on reserve balances
  • Inflation rates for future costs

Because these assumptions compound over time, even modest differences can lead to large variations in funding recommendations. Yet these inputs are rarely standardized or scrutinized by associations.

Communication Gaps: Incomplete and Missing Data

Reserve studies depend heavily on accurate and complete information, yet critical data is frequently missing or underreported.

Common gaps include:

  • Past expenditures not shared with the preparer
  • Lack of current bid data for major projects
  • Incomplete communication of component condition
  • Failure to disclose planned future projects

When this information is absent, reserve professionals must rely on anecdotal information or generalized assumptions, reducing accuracy and increasing variability.

The Maintenance Blind Spot

A particularly important—and often ignored—disconnect is the lack of documented maintenance history for physical components.

Reserve studies typically assume a standard useful life for assets. However, actual useful life is heavily influenced by maintenance practices. Without documentation of:

  • Preventive maintenance performed
  • Repairs and partial replacements
  • Environmental or usage factors

…the reserve study cannot accurately adjust remaining useful life.

The result is predictable:

  • Well-maintained components may be scheduled for premature replacement
  • Poorly maintained components may be overstated in longevity

This disconnect undermines both funding accuracy and credibility of the study.

The Missing Stakeholders

Reserve studies are often developed in isolation, without coordination with other professionals who influence financial outcomes.

Examples include:

  • Investment advisors, who could inform realistic return assumptions
  • Insurance professionals, who may rely on reserve data for valuation purposes
  • Engineers or contractors, who can validate condition and scope

Excluding these stakeholders limits the study’s usefulness and contributes to fragmented decision-making.

Standards and Statutes: Inconsistent Frameworks

The reserve study industry operates under a patchwork of standards and statutory requirements. Depending on jurisdiction and professional affiliation, preparers may follow different guidelines.

This lack of uniformity allows for:

  • Wide variation in methodologies
  • Different interpretations of compliance
  • Inconsistent levels of detail and rigor

Two studies may both meet applicable standards while producing materially different results.

Purpose Misalignment: More Than Just a Budget Tool

Reserve studies are often prepared with a narrow focus on budgeting. However, associations increasingly expect them to serve broader purposes, including:

  • Supporting insurance valuations
  • Informing capital planning
  • Tracking asset performance over time

If these expanded uses are not defined upfront, the study may not provide the necessary level of detail or structure to meet those needs.

Tracking and Feedback: The Missing Loop

Many associations fail to track reserve expenditures by component, creating a disconnect between projections and reality.

Without this feedback loop:

  • Actual costs are not compared to estimates
  • Useful life assumptions are not refined
  • Future studies cannot improve in accuracy

Each study becomes a static snapshot rather than part of a continuous planning process.

Why the Differences Matter

When these disconnects accumulate, the results are significant:

  • Large discrepancies between reserve studies
  • Confusion among decision-makers
  • Reduced confidence in funding recommendations
  • Increased risk of underfunding or unexpected assessments

What should be a strategic planning tool instead becomes a source of frustration.  Ultimately, the reserve study becomes less of a strategic tool and more of a compliance exercise—undermining its intended purpose.

Closing the Gap

Improving reserve studies requires alignment—not just better calculations.

Associations can take practical steps to enhance outcomes:

  • Establish clear reserve policies and funding objectives
  • Define both funding method and funding goal explicitly
  • Address treatment of long-lived infrastructure systems
  • Maintain detailed records of maintenance and repairs
  • Provide complete and accurate data to reserve professionals
  • Involve relevant stakeholders in the process

By addressing these disconnects, reserve studies can evolve into reliable, transparent tools that support informed decision-making and long-term financial stability.

Gary Porter, FMP, RS, RRC, CPA is the CEO of Facilities Advisors International and has prepared reserve studies for associations since 1982. As a Facilities Management Professional (FMP) he has training in all phases of facilities management. As a valuation expert he has testified at trial more than 50 times.  As a CPA he also focuses on the numbers. Gary is the author of seven books on financial aspects of community associations totaling nearly 5,000 pages and is also the author of more than 400 articles.  He has been published or quoted in The Wall Street Journal, Money Magazine, Kiplinger’s Personal Finance, The Practical Accountant, Common Ground, The Ledger Quarterly, Timesharing Today, Hawaii Building Trades, and The Florida Community Association Journal. Gary is a past president of CAI (1998) and was a founding member of the CAI California Channel Islands Chapter in 1979. 47 years as a CAI member. He resides in Las Vegas, NV. Facilities Advisors provides reserve study and maintenance planning services to associations nationwide.