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RESERVE STUDIES FOR ASSOCIATIONS
July 1, 2007
Since the year 2000 we have experienced rapid increases in
housing values and building materials. Most associations
are sorely under-funded in their Reserve Accounts due to
using inadequate or unrealistic assumptions for their
reserves. This is not anything that has been done on
purpose but rather, it has crept up on most associations
that have not had reserve studies done in the last few
years.
Increases in the cost of oil, building materials, labor
costs, insurance, and overhead and inflation factors have
all contributed to major increases in roofing, painting and
paving. In addition, most other major components that may
make up an association reserve fund have also experienced
major increases. Elevators, pools, decks, fencing and
landscaping have had large increases as well.
The purpose of performing a reserve study is to provide a
basis for the funding of the repair, replacement and
maintenance of the components that the association is
responsible for. We strongly suggest that an association
have a professional reserve study performed on the major
components that make up their reserve fund.
For condominiums Chapter 718 defines the minimums for the
association to follow. This includes roofing, painting,
paving and any other component that costs more than
$10,000.00. In today’s market, that includes most items
for a building.
For an association that is governed by Chapter 720, the
documents and common business sense will dictate the
minimum amounts and components that should be reserved.
The scope of a proper reserve study will contain the
following information:
1. Will identify the components which should be included in
the reserve study.
2. A physical inspection of the buildings, mechanical
systems, common
elements, including paving.
3. Field measure the components that have been identified.
4. Current cost estimates for replacement for each
component will be established using various nationally
accepted cost estimators and local contractors, if
necessary.
5. Each component will be evaluated in order to determine
their normal life expectancy.
6. The normal remaining life needs to be estimated for each
component. This estimate will be based on normal usage,
with normal maintenance.
7. The normal annual contribution will be calculated for
each component, based on a normal life expectancy.
8. Based on all of the information above, calculate and
establish the current reserve deficit or surplus. Further
calculations will be made to fund the deficits, if
necessary.
As a Board member I would want to have this information in
order to proceed with presenting a proper and accurate
budget to the membership. As a member I would want to have
this information in order to see if the reserves have been
or will be properly funded. With this information, if not
fully funded, I would then be able to calculate the cost of
a special assessment if a component had to be replaced
prior to its scheduled time. In addition, as a member, if
the reserves were funded properly or over-funded, I would
definitely point this out to a potential buyer, thus
showing evidence that the association is managed well and
that special assessments will probably not be necessary in
the future.
A unit in a well-run, properly funded community or in a
building is worth much more in the marketplace than a unit
in a community that will have to have special assessments
to fund any repairs.
When hiring a company or a service to provide reserve study
analysis information, make sure that the company has been
in business for a while and has a proven track record. Get
and check references from other associations. Also, we
suggest that you see a sample of their reports prior to
hiring them. Is this the type of information and in the
form that you require?
A professional reserve study will help to show the long
term financial health of your association and if required,
the association can then make the adjustments to their
budgets that will correct the past.
Copyright 2007© Associated Property Management of the Palm Beaches, Inc.
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