Condo Media - December 2017 - 27

The reserve analysis provides a "financial blueprint" for the future of an association.

the value of each unit is affected by
the amount of the regular assessment
charged to each unit. Reserve budgeting
is a balance. A comprehensive reserve
analysis is one of the most significant
elements of any association's longrange plan and provides the critical
link between sound business judgment
and good fiscal planning. The reserve
analysis provides a "financial blueprint"
for the future of an association.
Of course, board members also share
the point of view of unit owners.
UNIT OWNER PERSPECTIVE
Owners are typically motivated
to maintain:
n Aesthetics and functionality of
community
n Stable and logical financial planning
n No surprises
n Fairness
n Stable or increased property values

Sometimes these motivations compete. A fine line exists between "not
enough" and "too much." Each unit
owner should contribute to the reserve
fund their proportionate amount of
"depreciation" (or "use/deterioration")
of the reserve components.
For example, the anticipated useful
life of an asphalt shingle roof is approximately 20 years. If Bob buys a condo
when it is first constructed and lives in
the unit 10 years, then he should pay for
half of the new roof that will be needed
about 10 years after he sells. After Jane
buys the condo from Bob, she lives there
nine years and then sells the unit to Pat.
Jane should pay for almost half of the
new roof required in the near future. Six
months after Pat buys the condo, the
trustees seek proposals to replace the
roofs based on visible deterioration and
a competent inspection. The trustees
then award the contract and have the
roof replaced in the final months of

Pat's first year of ownership. If there is a
sufficient balance in the reserve fund to
pay for the roof, all is well. If the reserve
fund is insufficient, then the roof cost
will need to be funded by borrowing or
assessing all the owners to cover the
shortfall. In this case, the extra funds
will be paid by the current owners, some
of whom like Pat will have lived in the
association for only a short time. The
prior owners will not have contributed
enough to pay for the roof during their
ownership period. This fundamental
unfairness is what a reserve study can
help eliminate.
Through time, if each owner contributes their "fair share" into the
reserve fund, then the possibility of
large increases in regular assessments
or unscheduled special assessments
will be minimized. Appropriate reserve
contributions enable the community
to maintain common elements in a
sustainable manner. Proper reserve

D E D I C AT E D L O C A L P RO F E S S I O N A L

For the Life of Your Association
CRITERIUM

™

®

LET CRITERIUM
D U D K A- DUDKA
E N G I N ENGINEERS
EERS
BE YOUR ENGINEER BECAUSE...

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RESERVE FUND STUDIES
TRANSITION STUDIES
STRUCTURAL EVALUATIONS
ENGINEERING
CONSULTATION

YOUR COMMUNITY
IS OUR COMMUNITY.

CRITERIUM

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DUDKA ENGINEERS

www.criterium-dudka.com/association

1.844.885.0153
December 2017

27
Condo Media - December 2017

Table of Contents for the Digital Edition of Condo Media - December 2017
