Condo Media - December 2017 - 26
UntanglingRESERVE STUDIES
Determining contribution amounts to adequately fund the reserve
account is the task of a reserve study. Performing the study involves
quantifying the components that the association is responsible for
and then evaluating their condition during a comprehensive site
visit. A reserve study should present the inventory of common elements, anticipated year of replacement, current condition, and current cost in an easy to understand format. Based on a component's
current condition, a remaining useful life can be estimated. Using
current replacement costs and an inflation factor, a future cost for
component replacement can be determined.
Aggregating all future component costs over the anticipated
timeline of expenditures (typically 30 years) allows an organized
expenditure plan to be developed. Using this plan, equitable funding
of the reserve account with regular monthly contributions can be determined. Recommended regular funding plans can be used to eliminate special assessments. Special assessments are additional payments that unit owners are required to make, in addition to monthly
regular assessments. If a regular funding plan does not cover the
costs of maintaining the community, unplanned special assessments
or loans will be required to fund repairs and replacements.
WHY DO WE NEED A RESERVE STUDY?
Community association trustee board members may ask why they
need a reserve study. Some unit owners may also ask. Professional
property managers will likely recommend a reserve study to fulfill
their advisory role. All concerned parties should ask, but some involved may not know the importance of the question.
There are many answers to the question depending on your involvement with an association. I will highlight the following motivations in this introductory article:
n Fiduciary duty
n Aesthetics and property values
n Stable and logical financial planning
n Fairness
These motivations may be viewed differently depending on the
perspective of those involved:
n Board of Trustees
n Unit owners
n Mortgage lenders
n Prospective buyers
BOARD OF TRUSTEES PERSPECTIVE
An association board typically has a legal and fiduciary duty to
maintain the community in a good state of repair. Fiduciary duty
is defined as the "highest standard of care." Community property
values are significantly impacted by both the level of maintenance
provided as well as the amount of the regular monthly assessment
charged to each owner.
A high standard of care implies a prudent, implemented plan
to address long-range maintenance, repair, and replacement of
common components. Additionally, the plan should recognize that
26
CONDOMEDIA
Condo Media - December 2017
Table of Contents for the Digital Edition of Condo Media - December 2017
Table of Contents
Condo Media - December 2017 - BB1
Condo Media - December 2017 - BB2
Condo Media - December 2017 - Cover1
Condo Media - December 2017 - Cover2
Condo Media - December 2017 - Table of Contents
Condo Media - December 2017 - 2
Condo Media - December 2017 - 3
Condo Media - December 2017 - 4
Condo Media - December 2017 - 5
Condo Media - December 2017 - 6
Condo Media - December 2017 - 7
Condo Media - December 2017 - 8
Condo Media - December 2017 - 9
Condo Media - December 2017 - 10
Condo Media - December 2017 - 11
Condo Media - December 2017 - 12
Condo Media - December 2017 - 13
Condo Media - December 2017 - 14
Condo Media - December 2017 - 15
Condo Media - December 2017 - 16
Condo Media - December 2017 - 17
Condo Media - December 2017 - 18
Condo Media - December 2017 - 19
Condo Media - December 2017 - 20
Condo Media - December 2017 - 21
Condo Media - December 2017 - 22
Condo Media - December 2017 - 23
Condo Media - December 2017 - 24
Condo Media - December 2017 - 25
Condo Media - December 2017 - 26
Condo Media - December 2017 - 27
Condo Media - December 2017 - 28
Condo Media - December 2017 - 29
Condo Media - December 2017 - 30
Condo Media - December 2017 - 31
Condo Media - December 2017 - 32
Condo Media - December 2017 - 33
Condo Media - December 2017 - 34
Condo Media - December 2017 - 35
Condo Media - December 2017 - 36
Condo Media - December 2017 - 37
Condo Media - December 2017 - 38
Condo Media - December 2017 - 39
Condo Media - December 2017 - 40
Condo Media - December 2017 - 41
Condo Media - December 2017 - 42
Condo Media - December 2017 - 43
Condo Media - December 2017 - 44
Condo Media - December 2017 - 45
Condo Media - December 2017 - 46
Condo Media - December 2017 - 47
Condo Media - December 2017 - 48
Condo Media - December 2017 - 49
Condo Media - December 2017 - 50
Condo Media - December 2017 - 51
Condo Media - December 2017 - 52
Condo Media - December 2017 - 53
Condo Media - December 2017 - 54
Condo Media - December 2017 - 55
Condo Media - December 2017 - 56
Condo Media - December 2017 - 57
Condo Media - December 2017 - 58
Condo Media - December 2017 - 59
Condo Media - December 2017 - 60
Condo Media - December 2017 - 61
Condo Media - December 2017 - 62
Condo Media - December 2017 - 63
Condo Media - December 2017 - 64
Condo Media - December 2017 - Cover3
Condo Media - December 2017 - Cover4
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