"Used with permission from Regenesis.net"

Reserves: The Reason Why
"Reserves" for community associations is money set aside to pay for major repairs like roofing and painting. A reserves funding plan is a critical component of a community’s maintenance plan. The cost of most reserve projects is usually beyond the scope of the regular operating budget so when it comes to paying the cost, the unprepared Board often relies on special assessments. Needless to say, special assessments are extremely unpopular and sometimes difficult to collect. To avoid the unpleasant task, many Boards simply delay reserve maintenance thinking a year or two more won’t matter. It does.

There is a better way called the Reserve Plan. The Reserve Plan includes a Reserve Study that identifies all the major components for which the association has maintenance responsibility. These components require repair on a cyclical basis of between three and thirty years . The Study determines each component’s remaining useful life and the cost of repair. Once the Reserve Study is complete, a Funding Plan provides a way to systematically collect reserve funds from the owners in smaller manageable amounts. Once in place, part of each monthly assessment is earmarked for reserves and placed in a separate account for that purpose.

There are many practical reasons why the Board should adopt a Reserve Plan:

It's the Law   In many states, there are statutory requirements for reserves.  For example, both the Oregon Planned Community Act (ORS 94.595) and the Condominium Statutes (ORS 100.175) state:

1. Reserves shall be established for replacement of those common elements all or part of which will normally require replacement in more than three and less than 30 years.
2. The reserve account must be funded by assessments against the individual unit assessed for maintenance of items for which the reserve account is being established.
3. The amount assessed shall take into account the estimated remaining life of the items for which the reserve is created and the current replacement cost of those items.
4. The reserve account shall be established in the name of the association of unit owners that will be responsible for administering the account and for making periodic payments into it. The amount of the payments shall be adjusted at regular intervals to recognize changes in current replacement costs over time.
5. The reserve account is to be used only for replacement of common elements and is to be kept separate from assessments for maintenance.
6. Restrictions on the use of the reserve account do not prohibit its prudent investment subject to any constraints on investment of association funds imposed by the declaration, bylaws or rules of the association of unit owners.
7. Assessments paid into the reserve account are the property of the association of unit owners and are not refundable to sellers of units

Reserve Plans are Fair Since reserve funds are collected monthly (usually), whether an owner lives there for one year or ten, a proportional share of the reserve costs is paid. Subsequent owners no longer get "stuck" for prior owner obligations.

No More Special Assessments  The Reserve Plan identifies every major maintenance component and establishes a funding plan so money is available when needed. If the Board follows the plan, special assessments will no longer be necessary anticipated expenses.

Continuity  The Reserve Plan philosophy provides a thread of continuity that ties one board to the next. Subsequent boards are less likely to "raid" the reserve funds for operating expenses.

Reduces Conflicts   Since the Reserve Plan is usually performed by an outside consultant, there is less chance for disagreements based on conflicts of interest. Reserve Plans are thus based on the interests of the association and not that of individuals.

Improved Maintenance   Since the association will have the funds when needed, overall maintenance will improve. More timely maintenance extends the useful life of the assets and increases the value of the homes due to improved curb appeal.

Recommended by Professional Managers   Reserve Planning is recommended by the Community Associations Institute, national educational body for condominium and homeowners associations (www.caionline.org) 

Whether required by law or a matter of practicality, the reasons why an association should adopt and maintain a Reserve Plan are indisputable. The Reserve Plan is basic brick in your community’s foundation. Is it missing from yours? 

"Used with permission from Regenesis.net"

Setting Assessment Levels
Question: Our association charges quite a higher monthly assessment than the association next door. What is a reasonable level for monthly condo assessments?

Answer: There is a popular misconception that low assessments are better than high assessments. In other words, the board should set the fee level at the lowest rate possible and make the services fit. This goes contrary to the Board’s fiduciary duty. The Board's job is not to keep assessments low. It is to maintain or increase property values. If inadequate money is collected to properly maintain the association common property and the resulting neglect causes owners' property values to slide, the board has failed in its duty.

Comparing fee levels with other associations is meaningless since assessment level is a product of size, age, level of reserve funding, quality and quantity of maintenance and the owners' desire for specialized services. Like fingerprints and DNA, each association is unique.

To get to the meat of the matter, is to establish the reasonable cost of maintenance, administrative, management and financial services adequate to keep the operation running smoothly and the market values at a reasonable level. Annual budget must show a learning curve that improves in detail and accuracy with experience, and not merely repeats the mistakes of the past. For major repairs and replacements, the association needs a formal reserve study and funding plan. The reserve requirements melded with a realistic day to day operating budget will yield the answer to the $64,000 question: What is the proper assessment level?