The condo has the right layout, the location works, and the payment fits. Then the HOA disclosures arrive. Somewhere in that stack is a reserve study describing repairs that may cost hundreds of thousands of dollars. The question I want answered is simple: who is paying for those repairs, and is the association actually setting the money aside?
I have reviewed HOA disclosures where a professional study recommended a funding plan, but the board chose not to adopt the recommended funding. A study can explain exactly what the association needs and still leave the buyer exposed to a funding gap. I want to compare the recommendation with the adopted budget and the money actually being collected before my client makes a final purchase decision.
The Daily Mail featured my analysis of California HOA costs and reserve funding. This is where that discussion becomes practical for a San Diego condo buyer: understanding what you are buying into, what it could cost, and whether the price leaves you comfortable with the risk.
Start with three figures, not a verdict
I begin with the reserve balance, the annual contribution and the timing of major work. Each answers a different question.
- Reserve balance: How much money is set aside now? Confirm the date. A year-end projection in an older study is not the same as a current account balance.
- Annual contribution: How much does the adopted budget put into reserves? Compare that with the study’s recommendation, then ask whether the planned transfers are actually being made.
- Upcoming work: What must be repaired or replaced, when, and at what estimated cost? A large roof project due soon matters differently from a replacement expected many years from now.
The reserve study is an estimate of future needs, not a contractor’s binding quote. If the roof now needs replacement sooner, or recent bids are materially higher, I want that information considered alongside the study rather than buried behind an older estimate.
What does “20% funded” actually mean?
Percent funded compares the association’s reserve money with a calculated funding benchmark at a particular date. That benchmark reflects the accumulated wear on the components included in the calculation. It is not the total price of replacing everything in the community today.
For example, $200,000 in reserves against a $1 million calculated benchmark is 20% funded. That number deserves attention, but it does not tell you when the next major expense comes due or how much the board will collect before then.
I would rather understand the repair schedule and the funding plan than reduce a purchase decision to one percentage. I also want to know whether major components were left out of the study. A reassuring percentage is less useful if the calculation omits an expensive responsibility the association actually has.
Follow the money through one repair
Consider a simplified, hypothetical 40-unit association with equal assessment shares:
| Item | Amount |
|---|---|
| Current reserves | $200,000 |
| Roof replacement estimated in three years | $400,000 |
| Actual annual reserve contribution | $20,000 |
| Reserves after three years of those contributions | $260,000 |
| Roof-only funding gap | $140,000 |
If that entire gap were charged equally to the 40 owners, it would be $3,500 per unit. That is an illustration, not an assessment already owed. The association could change its funding approach, and actual allocations depend on its governing documents. This simple calculation also leaves out interest, changing repair prices and all other reserve expenses.
Now change the annual contribution to $80,000. The same association would accumulate $440,000 before paying for that roof, assuming nothing else changes. That leaves $40,000 after the roof, before any other reserve expense. We would still need the rest of the repair schedule to judge whether the plan is adequate. The starting reserve balance has not changed, but the funding picture has.
This is why I check what the board adopted and what is happening now. A recommended contribution printed in a study does not put money in the account.
Read the budget and board decisions together
California’s annual HOA budget disclosures address reserves, the adopted funding plan, deferred major work, anticipated special assessments and other important financial information. I use those records together rather than treating the reserve study as the entire answer.
If the study recommends more funding than the adopted budget provides, I ask how the difference will be addressed. Was an increase approved? Is a special assessment being discussed? Did the board defer work, and why? A proposal in meeting minutes and an approved charge are different stages; the buyer needs the actual status and effective dates.
Insurance belongs in the same conversation. A higher master-policy premium can put pressure on the operating budget even when the reserve contribution stays unchanged. Ask about the current premium, renewal timing, deductible and any adopted increase. Have your insurance professional explain the coverage you need for the unit and any relevant exposure under the association’s policy.
For the broader document list, use my San Diego condo HOA due-diligence checklist. Here, the goal is to understand whether the financial plan behind those documents works for your purchase.
Turn the reserve study into a usable funding plan
To understand how the association reached its recommendation, I would open the component schedule. That is where the broad reserve number becomes a set of specific responsibilities, estimates and payment dates.
Read one component row all the way across
Choose a major item, such as the roof, paving or an elevator. Check what the association is responsible for, how much work is included, the estimated cost, the total useful life and the remaining life. A roof estimate covering one building tells a different story from an estimate covering every building. Ask which components were excluded and why.
Then check when the condition and cost assumptions were last reviewed. Compare the latest annual update with the date of the physical inspection and any newer project reports or bids. A reserve study helps plan the money; the relevant engineering, inspection and contractor records help establish the condition and scope of the work. A five-year remaining-life estimate deserves another look if a later report identifies work needed sooner.
See how the funding benchmark is built
Here is a hypothetical three-component example using current replacement costs and a simple accumulated-wear calculation. It leaves out inflation, investment earnings and every other component:
- A $300,000 roof with a 20-year useful life and five years remaining has used 15 years of that life. Its benchmark is $300,000 × 15 ÷ 20, or $225,000.
- $90,000 of paving with a 15-year life and three years remaining contributes $72,000 to the benchmark.
- A $120,000 elevator with a 30-year life and ten years remaining contributes $80,000.
The combined benchmark is $377,000. With $180,000 in reserve cash, this limited example is about 47.7% funded. The $197,000 difference measures the gap against accumulated wear; it does not set an assessment payable today. The year-by-year cash schedule still has to show when the work occurs and what money will be available.
For a fuller example of that timing and the effect of changing repair costs, see my guide to evaluating future special-assessment risk.
Understand the cushion the funding plan provides
The California Department of Real Estate’s reserve-study guidelines describe three common planning approaches. Full funding aims to keep reserves near the accumulated-wear benchmark. Threshold funding aims to keep cash above a specified minimum. Baseline funding aims to keep the projected year-end balance at or above zero.
I would ask to see the lowest projected cash balance, the year it occurs and the assumptions needed to reach it. A plan that barely stays above zero leaves less room for a higher bid or earlier repair than one with a substantial cash cushion. Ask what happens to the projection if either changes. Check contractor payment dates within that low-balance year, since contributions collected later cannot fund a bill due earlier. These planning labels also need to be kept separate from the lender’s project requirements; my AB 2050 and condo reserve-rule guide explains the different standards and dates.
Match the plan to the accounts and approvals
Compare the study’s opening balance with the current financial statement and reserve-account records. Identify commitments already approved, the transfers actually made from dues and any association loan payments. If reserve money was temporarily moved to operations, ask for the recorded reason and repayment plan. Money expected back later and cash currently available to pay a contractor need to be understood separately.
For the next project, compare increased regular contributions, a special assessment, association borrowing and any phasing supported by the project professionals. Each choice changes who supplies the money and when. Ask for the cost and payment schedule, the proposed unit allocation, the approval status and, for borrowing, the rate, fees and future debt service.
California Civil Code section 5560 separates adoption of the reserve funding plan at an open meeting from the action approving an assessment increase. I would want both decisions documented where applicable. Members can request the full reserve plan; a buyer should obtain it through the seller and the authorized transaction request.
Bring the findings back to three questions: are the estimates credible, does actual funding follow the adopted plan, and can your household carry the likely payment schedule? I help connect those answers to the offer and contingency dates. A missing balance, unexplained transfer or conflicting completion date gives us a specific question to resolve before committing.
Where AB 2050 fits
Update September 29, 2026: Governor Newsom signed California AB 2050. Its new reserve-funding requirements begin in 2032. The Governor’s signing message explains the transition to the new funding framework.
The enrolled text calls for contributions sufficient to keep the projected reserve balance from falling below zero over a 30-year period. For an association whose projection falls below zero, it includes a contribution requirement of at least 15% of its gross annual budget until the projection no longer goes negative. That allocation is different from a 15% dues increase and different from being 15% funded.
The buyer’s immediate question is how the association will pay for the expenses already identified. I want the current budget, repair schedule and any approved funding changes to support the purchase decision my client is making today.
Turn the findings into a purchase decision
Once we understand the numbers, I bring the discussion back to the home and the offer. What is the total monthly cost? Is there an approved assessment? What additional cash would you still have after closing? How does this condo compare with alternatives once their association costs and condition are considered?
Sometimes the right response is a better-supported offer or a permitted seller credit. Sometimes it is getting a specific unanswered question resolved before removing contingencies. Sometimes the price and the exposure simply do not work for the buyer. A price adjustment can improve the economics, but it cannot repair the building or satisfy a lender’s project requirements by itself.
I coordinate the property questions with the association, management, lender and other appropriate professionals. The lender determines whether the project meets the requirements for your financing. My role as your broker is to help you compare the choices, negotiate from the actual facts and avoid committing to a payment plan that depends on everything going perfectly.
Questions buyers ask
Is a low reserve percentage an automatic reason to walk away?
I would look at the size and timing of the shortfall, current contributions, upcoming repairs and any approved funding changes before making that recommendation. The important issue is what the condition of the association means for this purchase and your budget.
Can low monthly dues be misleading?
Yes. A lower payment today can come with less money being set aside for future work. Compare what the dues cover and how the association plans to pay for repairs, not just the advertised monthly amount.
What if there is already a special assessment?
Establish the exact amount, purpose, payment schedule and responsibility under the purchase contract. My guide to buying a condo with a special assessment explains those decisions in more detail.