Edgewood Reserve Study
Analysis Edgewood HOA’s Reserve Study Methodology, Assumptions, and Liquidity
A closer look at what reserve studies can assume — and what homeowners really see.
Financial Transparency Homeowner Protection Public Interest
📅 September 27, 2025
What Does a “Reserve Study” Really Do?
A reserve study estimates when major HOA assets will need repair or replacement, and how much money should be set aside to cover those future costs. In California, Civil Code §5550 requires an updated study at least every three years.
Why this matters: Reserve studies guide dues and special assessments. Understanding their parts helps homeowners see where assumptions may differ from actual billings or completed work.
Part 1 — Physical Analysis
Scope
Inventory of common-area components (e.g., roofs, paving, HVAC), their condition, remaining life, and estimated replacement costs.
Outputs
A component list with ages, life-cycle timelines, and cost estimates used to schedule future projects.
Why it matters
If condition or timing is wrong—or if work is deferred without updating the study—the model can show “renewed” assets on paper that weren’t actually repaired.
Part 2 — Financial Analysis
Inputs
Current reserve balance, projected dues, any special assessments, earnings, and scheduled project costs from the physical analysis.
Outputs
Funding plans and “percent funded” metrics indicating the model’s projected adequacy.
Why it matters
Assumed assessments or uncollected revenues can make reserves appear stronger than bank activity supports. Best practice is to show Actuals only vs. Actuals + assumptions side-by-side.
Quick Fact: A Reserve Study is not an Audit
Reserve preparers rely on information supplied by the Board. They do not verify cash balances or confirm that projected assessments were ever collected.
CAI Reserve StandardsWhere Assumptions Can Create a Misleading Picture
- Assumed Special AssessmentsHow it worksFuture assessments can be inserted into models as if they were already billed/collected, even when no member approval or billing occurred.Why it mattersInflates projected cash and percent-funded, suggesting reserves are stronger than bank accounts reflect.
- Maintenance SchedulesHow it worksStudies assume projects finish on schedule. If work is deferred but the study isn’t updated, component life may be “reset” on paper as if repairs occurred.Why it mattersDeferred work is hidden, creating an inaccurate picture of reserve health and understating true backlog.
- Percent Funded MetricHow it worksIt’s a ratio (reserves ÷ fully funded reserves), not “cash in the bank.”Why it mattersIf it includes assumed contributions, the figure can mislead owners/lenders about true liquidity.
Quick Fact: What “Percent Funded” Really Means
Percent funded = (actual reserves ÷ fully funded reserves) × 100. If assumed revenue is included, it can look much higher than true cash supports.
CA Reserve Disclosure LawEdgewood’s Case: What the Documents Show
Scope & Sources: Summary of board-provided CPA reviews, reserve studies, and annual disclosures, compared with observable actions. This is not legal or tax advice.
- 2025 CPA Review — Cash vs. Fund BalanceReport statesLists $414,869 “Cash & Equivalents” while also showing a fund balance deficit of –$27,730.Record showsPositive cash with a negative fund balance means obligations/accruals/assumed inflows offset that cash. Not all “cash” is free to spend.Why it mattersHeadline cash can overstate strength if liabilities or uncollected/assumed revenues are baked in. Evaluate net position and any restrictions, not the cash line alone.
- Phantom $1,389–$1,400 Assessment (2025/26)Projection claimsReserve schedules assume every homeowner was charged about $1,400 in 2025/26.Record showsNo member billing or approval is evidenced. It appears as a modeling input, not realized revenue.Why it mattersTreating a hypothetical charge as collected inflates percent-funded figures and year-end balances.
- Unbilled $4,167 Per-Unit Contribution (2024)Disclosure referencesA one-time 2024 contribution (~$4,167 per unit) appears in forecasts.Record showsMembers were not billed/notified; corresponding approvals/deposits not found.Why it mattersIncluding unbilled amounts overstates balances and percent-funded, obscuring the gap between modeled and actual cash.
- Stacking of Assumed Assessments Across YearsPatternForecasts appear to layer ~$4,167 (2024) and ~$1,400 (2025) assumptions without clear member disclosure.ImplicationSuggests owners have contributed thousands more than were ever approved or collected.Why it mattersLayered assumptions compound misalignment between reported funding levels and actual liquidity.
- “Percent Funded” Reported Without Assumption BreakoutReported figurePercent-funded presented without separating confirmed cash from modeled/assumed contributions.RiskMembers may infer reserve strength from a figure partly resting on amounts not billed, approved, or collected.Good practicePublish side-by-side metrics: (A) Actuals only vs. (B) Actuals + assumptions, with footnotes for any unapproved/uncollected inputs.
- Maintenance Timing Can Mask Deferred WorkHow models workStudies schedule projects on a planned timeline. If work is delayed but the model isn’t updated, components may look “renewed” on paper.Effects
- Modeled vs. performed: Components look renewed though work hasn’t happened.
- Hidden backlog: Deferred tasks become off-balance “maintenance debt.”
- Compounding risk: Deferrals increase failure risk and future costs.
- Disclosure gap: Buyers/lenders may assume scheduled work occurred.
Good practiceUpdate the study with actual completion dates, conditions, and any deferrals so cash-flow and percent-funded reflect reality.
Quick Fact: Why a Deficit Matters
Even if cash looks high, a fund balance deficit means liabilities exceed assets. Your net position is negative.
What Homeowners and Authorities Should Ask For
- Monthly Bank StatementsAsk forComplete statements for all reserve accounts, covering at least the past 36 months.Why it mattersConfirms actual deposits, withdrawals, and balances instead of projections.
- Assessment ApprovalsAsk forBoard resolutions or ballots proving any special assessments in projections were approved by members.Why it mattersSeparates hypothetical assessments from enforceable, authorized revenue.
- Clear Funding PlansAsk forSide-by-side numbers: “with assumptions” vs. “without assumptions.”Why it mattersReveals true reserve health without relying on uncollected or unapproved contributions.
- Maintenance & Inspection ReportsAsk forDocumentation showing scheduled repairs/replacements were actually completed.Why it mattersPrevents “paper renewals” where assets look replaced but work was deferred.
Quick Fact: What an Assumed Assessment Is
It’s money the Board expects in theory — but hasn’t billed. Example: Edgewood’s ~$1,400 per-unit assessment was never charged, so counting it as cash is misleading.
Legal & Policy
National professional guidelines defining scope, terminology, and ethical practices for reserve studies.
Requires a reserve study at least every three years, including physical inspection of major components.
Mandates the annual Reserve Funding Disclosure Summary (Form 5570).
Quick Fact: Why Context & Comparables Matter
Compare reserves, assessments, and dues against similar communities to evaluate whether reported numbers reflect true financial health.
View Context & ComparablesWhat Homeowners Can Do Right Now
- Request Core DocumentsActionAsk for the latest reserve study, annual CPA review, and monthly bank statements for all reserve accounts.Why it mattersThese records show whether projections match real balances and cash flow.
- Confirm Actual Cash BalanceActionRequest in writing:
What is the cash balance as of the latest month?
Why it mattersSeparates “cash equivalents” from true liquid balances at the bank. - Share InformationActionShare this article and supporting documents with neighbors.Why it mattersAwareness builds accountability and better financial governance.
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