In some areas of the country, specifically California where it is required by State Law, at least every few years a Reserve Study needs to be prepared on the basis of a “diligent visual site inspection”. But what does that mean?
Some Governing Documents (or jurisdictions) require that a Reserve Funding Plan not be based on a special assessment. But some communities wiggle around that requirement by just “temporarily increasing the monthly assessments”, not levying a one-time special assessment. What is the difference?
I wish the answer was as simple as the question. Since associations come in all different types and sizes, and in that variety there are significant differences in the common areas maintained by the association and the Operational Budget expenses, the answer is “no”.
In this busy “budget time” of year, when so many associations (those with a 12/31 Fiscal Year End) are working on their budgets, it is a good time to remind my readers why Reserve Contributions are important. And it’s not just me. A prominent Southern California attorney , Mr. Robert DeNichilo, just wrote a nice summary on his “HOA Brief” blog (to see the article, click here). In addition, as Mr. DeNichilo notes, the California Department of Real Estate has just issued a consumer warning about the dangers of underfunded community associations (to see the warning, click here).
The standard comment we get from clients, prospects, and other industry professionals is that Reserve contributions are about “preparing for the future”. Well, they’re not. Most of us have a mortgage. Some of those mortgages have a “balloon” payment at a future point in time. That is a future expense. Some of us with small kids in the house are anxious about college bills. That is a future expense. But physical deterioration goes on every day. One day a roof is new, the next day it’s not.
Good question. Often when a client challenges our replacement cost estimate because “it is way off”, we look into why their actual cost is out of line with what we expected. Typically we find it has to do with scope of work differences. One that comes to mind is a roof that was three times more expensive than we expected it would cost, which turned out to be because the association was reconfiguring a flat (low-slope) roof into a sloped, shingle roof.
