Condo Media - July 2013 - (Page 48)

by Mitchell H. Frumkin, PE, CGP, RS OPERATIONS C 7 THINGS TO KNOW BEFORE YOUR NEXT RESERVE STUDY Preparing for a Physical and Financial Analysis ommunity associations are charged with the responsibility of maintaining the property value of their common elements. To do this properly, the association must develop a funding plan for future repairs and/or replacements of major commonarea components. A reserve study is a professional budget-planning tool involving both a physical and a financial analysis that does just that. After determining the estimated remaining useful lives of the association’s components and identifying the current status of the association’s reserve fund, the reserve study report establishes a stable and equitable funding plan to offset the anticipated future major common-area expenditures. In addition to providing a specific plan for the replacement of major items, reserve studies meet legal, fiduciary and professional requirements. Reserve studies also minimize the need for special assessments and enhance resale values. Before obtaining your next reserve study, you should know the following: ists and professional engineers undoubtedly have the expertise and experience to compose more accurate and effective studies. The reserve specialist designation is awarded by Community Associations Institute (CAI) to those who have a bachelor’s degree in construction management, engineering, or architecture and have prepared at least 30 reserve studies in the past three years. By obtaining this designation, the individual has proven through a combination of education and experience that he or she is qualified to perform a reserve study in conformance with the National Reserve Study Standards of CAI. Since a significant portion of a reserve study is based on the condition of the individual components included within the study, such as roofs and roads, it is important that they be assessed by someone with extensive field evaluation experience and knowledge. Being a licensed professional engineer confirms that the person has been trained and educated in performing this type of evaluation. 1 All reserve studies are not equal. Years ago, most reserve studies included a list of all of the association’s All reserve study preparers are not equal. Although a reserve schedule could be prepared by anyone, reserve special48 Condo Media • July 2013 2 components, their replacement costs, and remaining useful lives in order to determine what the next year’s funding should be. To avoid being short sighted and focusing on only the next year’s replacement items, CAI developed national standards that consider longterm planning decisions. According to CAI’s National Reserve Study Standards, all reserve studies require both a physical and a financial analysis. The physical analysis determines the existing condition of the common elements. The financial analysis includes a 20-to-30year cash-flow projection of the reserve fund and focuses on the planning and budgeting of replacing these common elements. By providing this projection, the association is able to make an informed decision in regard to how much money should be set into the reserve fund each year to feel comfortable that a special assessment will not be required over the life of the projection. 3 Full funding may mean over-funding. The National Reserve Study Standards of Community Associations Institute recommends four different funding goals to choose from as a basis

Table of Contents for the Digital Edition of Condo Media - July 2013

Condo Media - July 2013
From the CED’s Desk
President’s Message
CAI News
CAI Regional News
Asked & Answered
Homeowner’s Corner
Volunteer Spotlight
Vendor Spotlight
2013 CAI-NE Financial-Reserves Directory
Classified Service Directory
Advertisers Index

Condo Media - July 2013