There are no written standards but I suggest the establishment of the size of your reserve fund should be a task your management company should address. They shoukd have a data base which reflects the expected life cycle for every piece of equipment in your condo.Thety should prepare this estimate for you
The State of Michigan "recommends" that a Board of Directors strive to maintain a reserve fund of at least 10% of the yearly budget.
The Community Associations Institute has published guidelines for preparation of reserve studies and it has standards of professional performance by those who are registered by it as Reserve Specialists (RS):
"Reserve Funding and Reserve Investment Strategies" and
"How & Why Community Associations Invest Assets" Copies are availablewww.caionline.org.
In addition,your State may publish its standards, e.g., CA.
Under Florid Law the standards you inquire are as follows:
Any item which would cost 10K to replace or maintain, must be included in the reserve schedule.
Reserve funds MAY NOT BE USED for any other item for which it was reserved unless unit owner vote is taken and requisite vote is obtained.
National Reserve Study Standards exist. They are the set of standards all who hold the "Reserve Specialist" designation agree to follow. These are standard disclosures, terminology, principles, etc.
For example: an asset is appropriate for Reserve designation if it meets the following four-part test:
1) Common area maintenance responsibility
2) Life limited
3) Predictable remaining useful life
4) Above a minimum threshold cost of significance.
Standard disclosures are things such as Level of Service (Full, With-site-visit update, or No-site-visit update), Fiscal year, etc.
Because this is a field of estimating, it is not unusual to be "surprised" by something that in arrears looks like it should have been a Reserve component, and in such a case spend the $ from Reserves and then adjust the Reserve Study.
But beware the temptation to spend Reserves for just any "surprise". Some things don't meet the above four-part test, and Reserves should not be depleted for such components.
not sure about each state but in Colorado it is a law that an Association has to have a reserve plan and has to have an investment policy for those funds... that being said, that doesn't mean that every association has adequate funds in their reserve account to cover all the necessary capital improvements (roof, siding and etc.) When in comes to the reserve fund there are several key things - one make sure you have all of the capital projects accounted for; second - the timing/life expectancy of the replacement needs to be somewhat accurate - as long as you have all you capital projects accounted for if you are off by a year or that won't hurt as bad as if you completely missed something and lastly, once you have a plan - make sure you update it frequently (every couple of years).
The reserve account is a lot like planning for retirement or college saving plans - the earlier you start, the better... There are many professionals that can do reserve studies. Once you have a plan, the hard part is making sure you fund it and follow it.
I know many homeowners are question or are reluctant to see several hundred of thousands of dollars in a "savings" accounts but I always tell owners and Board members that question the need for the reserve that "they as homeswners will not be here forever but the Association as an entity will be and needs to plan accordingly."
One other thing I try to do for Association to help supplement the reserve account - it depends on how your legal documents read but, at the time of a re-sale of a home/unit - estabish a policy (this has to be done via your legal documents) that the new owner pay a "Capital Improvement Fee." In essence the new buyer is having to buy/provide some equity into the reserve account... hope that makes sense?!
Hope this helped!
In Illinois, the statutes (state laws) that deal with reserve funds for condo associations stipulate that each condo association must have a reserve fund unless the majority of unit owners vote not to have a reservce fund. As an accountant (who deals with condo association clients), I always suggest that condo associations have a reserve fund of at least 25% of the value of all items that might need to be replaced. This includes such items as the roof, outside stairs and porches (especially if they are wood), furnaces, water heaters, central air (if applicable), etc. If the roof would cost $50,000 to repair and $125,000 to replace, the furnace would cost $1250 to replace, the water heaters (assuming more than one) would cost $750 per water heater to replace, I suggest that the condo association have at least $40,000 in the reserve fund. Some accountants (and other organizations that work with condo associations in Illinois) suggest the minimum should be at least $125,000. This list is by no means all inclusive.
Every condo association is different, and has different needs. Also the buildings in each condo association might not all be the same age, so there are many other things to be considered regarding the minimum amount to be considered to keep in a reserve fund.
One way to determine how much might be required for a reserve fund is to have a professional appraiser come out and appraise the property for those items that would need to be replaced and/or repaired during the next 10 to 15 years. The reserve fund can then be based on the appraisal. The higher the risk (i.e., the older the buildings or condo association), the higher the reserve fund should be (sometimes at 100% or more of anticipated replacement costs).
The "rules" is dependent on your state law and condo documents. There are various, sometimes contradictory items. For example, the IRS says that painting CAN'T be paid out of replacement reserves while (I believe) Florida requires it.
we currently have a reserve fund for roofing, but last year we suffered hail damage, so our insurance co. replaced the roof, leaving us with our reserve fund in tact, can we use this fund for another expense, i.e. concrete, since we shouldn't need roofing for many years to come.
Every HOA and Condo board should designate someone responsible for the roof of their building. The roof should be treated as a depreciating asset to ensure the benefit of its entire service life.
Here are some things you can do to help you prepare your roof before the rainy/storm season starts in Florida:
1. Create a historical file: Every association /condo board should have the following items together:
a. Roof specifications
b. Material manufacturer specification and product data information on the different components of the roof
c. Roof warranties from the manufacturer of the material and/or the roofing contractor
d. Contact information of your roofing contractor
2. Conduct periodic inspections. Your roof should be inspected at least twice a year by a qualified architect, engineer, roof consultant or roofing contractor who has a good understanding of the basic components of the roof system. Spring and Fall are good times to do this because they are prior to and just after the severe Florida rainy and hurricane seasons. Additional inspections should be ordered after severe hail and wind storms or after any installation of new mechanical equipment. If you haven’t already assessed your property’s vulnerability to wind loading, now is the time to do it.
3. Utilize Preventive Maintenance. This is the action taken as a result of the inspection process. It is very important that you select a contractor who specializes in this area. Preventative maintenance is a special part of the roofing trade, very different from conventional roofing contracting. Hiring a roof technician properly trained in all roof systems, who has served an apprenticeship of diagnosing the proper corrective procedures, is as important as taking your car to the mechanic that specializes in a specific make and model.
Considering that your roof protects a significant portion of your real estate and personal assets, a few dollars in preventative maintenance are a worthy investment. If it’s been a while since your last roof inspection, you should anticipate a significant charge to bring your roof up to a manageable level. Once you’ve established a routine inspection/maintenance pattern you can expect costs to range between $0.06 to $0.15 per square foot, per inspection. Considering the cost to reroof a building can run from $5.00 to $20.00 per square foot, extending the service life of your current roof through proper maintenance is worthwhile. When the restoration work is completed, don’t forget to add the new information to your historical file. List what was repaired, how it was repaired, how much it cost and who did the work.
The best emergency strategy you can have is an established relationship with a qualified roofer. Don’t risk making the repairs yourself; it is dangerous for untrained individuals to climb up on a roof and attempts to make repairs without professional guidance can sometimes result in more costly damage. The National Roofing Contractors Association provides a wide range of information and services to help homeowners and building owners make informed decisions about replacing and maintaining their roof systems, including how to hire a professional roofer.
Ron Ricketts Program Director of ‘TotalCare’
Roof Assent Management
In my experience, HOA's pay for a reserve study and choose not to do the update. As time passes, the study becomes less accurate, which is why updates are so important. In my opinion, an update should be considerably less than the original.
My condo assn. has a reserve fund which was approved by owners during 2005. my concern is with the handling of the resersve portion of the monthly receipts and how that should be processed and deposited into the bank fund itself. Im a retired acct. and do not observe any consistent process to accomplish that. it appears that deposits are made at convenient times and in largely differing amts. the law says reserve funds will be separately maintained from gen. operating funds, but when does that occur. a statement by the PM would lead me to believe those monies are not "reserve funds" until trf. to the reserve fund. That doesnt seem proper to me. can you help?