Condominium Reserve Studies
OmniSpect is a Member of The Community Associations Institute
FAQ's
- What is a Reserve Study?
- What will you learn from a Reserve Study?
- Why have a Reserve Study performed?
- What can happen if Reserves are inadequate?
- What is wrong with using Special Assessments to pay for repairs?
- When should a Reserve Study be performed?
- Is it the law to have a Reserve Study performed?
- Why have OmniSpect Perform your Reserve Study?
- How often does the Study need to be updated?
- What is a Reserve Maintenance Plan?
- How many levels of service are there?
- What is the cost?
- Sample Reserve Study
The goal of the study is to develop a plan to properly fund the reserve account so that future replacements of assets will be funded. Another part of the study is to evaluate the current status of the reserve account.
The initial phase of the study is to have the Condo Association's Board of Directors (BOD) or a representative work with OmniSpect to complete a study request form and questionnaire. OmniSpect will then be able to bid for the work.
Once commissioned, OmniSpect will again work with the BOD or its representative to collect required information and data. OmniSpect will then perform a site survey that will catalog all the association's assets and determine their expected life as well as replacement cost.
OmniSpect will then consolidate all the information into a report complete with financial projections (30 years).
In accordance with the National Reserve Study Standards, OmniSpect will be completing a level I (Full study) that must perform the following five tasks:
- Component Inventory
- Condition Assessment (based upon on-site visual observations)
- Life and Valuation Estimates
- Fund Status
- Funding Plan
What will you learn from a Reserve Study?
After we determine what is needed to fully fund the account, a key part of study is to determine the percentage the current reserve account is funded. (i.e. "The current reserve account is 30% funded".) In this example, it lets the association know that they have a weak or poor financial position and to expect the need for future assessments.
When the above is determined, a financial plan is created to strengthen the association's financial position. (Ideally to become over 70% funded)
What can happen if Reserves are inadequate?
- Frequent increases to monthly dues
- Frequent Special Assessments
- Unfair distribution of costs (passing the buck)
- Poor financial position or even debt.
- Decay of property
- Decreased property values
- Breach of fiduciary duty of board
- Breach of board duty to maintain the building
What is wrong with using Special Assessments to pay for repairs?
Since most associations require unit owners to approve any Special Assessments, there is no guarantee that the assessment will be approved and the required work be done. It is always difficult to get approval form the unit owners for assessments. The policy of using assessments to cover repair costs will usually divide unit owners, be unfair to unit owners (especially if they are on a fixed income), and result in property decay and decreased property value. Often what will happen is that compromises will be made in order to reduce the assessment amount such as patching an asset that needs to be replaced or using the lowest bidder to do the work. Small payments over time are far better then being hit with irregular large devastating payments.
The strongest argument against assessments is that a unit owner that moves out prior to the assessment get off scott-free for paying their fair shire of deprecation of the common assets that were consumed while that unit owner lived in the community. This is very unfair to the current unit owners.
When should a Reserve Study be performed ?
Whether the property is new or old, a Reserve Study should be done A.S.A.P. A common misconception is that a new property does not need to fully fund a reserve account. Not funding the account from day-one will will simply push off and accumulate the financial burden that will later be placed on the association and it's unit owners. This will always result in special assessments, poor financial position, be unfair to the the unit owners at that time and even lead to a situation that requires the association to go into debt. The only fair way is to have all unit owners pay for the deprecation of the property while they are using it. Even if a property is new, it has already started to depreciate!
A Reserve Study will ensure that all unit owners will pay their fair share of the property's deprecation each year they use it. It is for this reason that annual updates of the study need to be performed.
Is it the Law to have a Reserve Study performed?
Many states do require associations to perform Reserve Studies some even require annual updates.
As officers of an association, the board has a fiduciary duty to properly manage its reserve account and keep it properly funded. The following states below do not directly require associations to perform a Reserve Study but:
NH: The NH Condominium Act (chapter 356 -B:41) holds the Association responsible for common area maintenance, repair, renovation, restoration and replacement.
MA: MGL Chapter 183A, Section 11(a) Requires that all Home Owner Association's By-Laws include a method of "providing for the necessary work of maintenance, repair and replacement of the common areas and facilities and payments therefor".
ME: Like NH, the Maine Condominium Act Title 33, Chapter 31, Article 2, 1603-107(a) holds the Association responsible for common area maintenance, repair and replacement.
Why Have OmniSpect perform your Reserve Study?
The most important part of a Reserve Study is to complete an accurate site survey of all the common assets. As experienced licensed home/building inspectors and licensed/certified septic evaluators with thousands of inspections under our belt, OmniSpect is better qualified to assess the current condition of these assets, resulting in a more accurate study. OmniSpect is also uniquely able to perform Construction Defect Inspections and Septic Evaluations if needed.
All OmniSpect Reserve Studies comply with the National Reserve Study Standards created by the Community Associations Institute.
OmniSpect is a member of The Community Associations Institute.
How often does the Study need to be updated?
To keep an accurate and well funded reserve, it is important to update/refresh the study annually and have a site visit every three to five years. OmniSpect offers Reserve Maintenance Plans
What is a Reserve Maintenance Plan?
A Reserve Account needs to be updated annually (Level 3) and refreshed with a site visit every 3-5 years (level 2). OmniSpect will provide these updates into the future.
How many levels of service are there?
There are three levels of Reserve Studies defined in the National Reserve Study Standard.
Level 1 Full: A Reserve Study in which the following five Reserve Study tasks are performed:
- Component Inventory
- Condition Assessment (based upon on-site visual observations)
- Life and Valuation Estimates
- Fund Status
- Funding Plan
Level 2 Update, With-Site-Visit/On-site Review: A Reserve Study update in which the following five Reserve Study tasks are performed:
- Component Inventory (verification only, not quantification)
- Condition Assessment (based on on-site visual observations)
- Life and Valuation Estimates
- Fund Status
- Funding Plan
Level 3 Update, No-Site-Visit/Off-site Review: A Reserve Study update with no on-site visual observations in which the following three Reserve Study tasks are performed:
- Life and Valuation Estimates
- Fund Status
- Funding Plan
The costs of studies will vary depending on size, condition, amount of assets ect. However we have minimum pricing as follows:
Level 1: $1,000.00
Level 2: $700.00
Level 3: $250.00
Construction Defect Inspection & Septic Evaluations: Call for a quote. 1-603-929-4700
Click the following link for a sample of a Reserve Study. This can take a couple of minuets!
Homeowners Association (condo) Report
If you have any question about the sample report or have problems downloading it, please e-mail us at OmniSpect@comcast.net or call us at 603-929-4700.