With 100% Certainty!

We’ve all heard the famous quote “Nothing is certain except for death and taxes”, often attributed to Benjamin Franklin. But we all know there are a few more certainties in life. Gravity, the sun rising every morning, and because the sun rises each morning and time marches forward in an unrelenting manner, deterioration is also inevitable. So why do so many boards, charged with maintaining the common areas of their association, fail to adequately prepare for the inevitable deterioration of the common areas?

I believe the answer is twofold. First, there is a mistaken impression that the cost of ongoing, daily deterioration is a future expense. That is an easy mistake. But the roof, and all the other common areas, deteriorate in a predictable manner every month on an ongoing basis. Don’t mistake the absence of a bill from the roof each month for the fact that every owner just used up one more month of the roof’s limited life. Since those inevitable Reserve expenses are so large, on a practical matter it is best and most fair to the always changing ownership base to pay the “deterioration” bill each month. In that way, every owner pays their fair share of monthly deterioration, and the association never falls behind these recurring monthly costs. 

Second, we often hear managers report that their boards “just don’t know” how much to responsibly set aside, so they don’t feel the obligation. Again, don’t blame the roof for not sending out a bill each month. That information is readily available in an updated Reserve Study. The cost of common area deterioration occurs with 100% certainty. Roofs will fail. Carpet will wear. Mechanical components will deteriorate. It’s because the sun rises each morning! Just because a roof may last 18 or 22 years instead of the expected 20 doesn’t mean it is unknowable. It just means there is some variation. For those of us who commute, we know our typical commute time (average across the USA is 26.9 minutes). So we plan for that commute, even though we know some days may be faster or slower. But even though your commute time varies, continued employment dictates you plan accordingly! The same is true for Reserve contributions. There may be some minor variations, but dismissing the ongoing deterioration costs as “unknowable” will cause special assessments, deferred maintenance, and low property values for the associations who fail to prepare.

Reserve expenses will occur with 100% certainty. Making a responsible effort to budget for the ongoing repair and replacement needs of the association is the job of a community association board member, and cannot be avoided without consequence. We can say that with 100% certainty!

Posted in Blog | Leave a comment

California’s SB 721 (aka the Deck Inspection Bill) – Poof it’s Gone!

On Jun 20, 2018 this bill was amended, removing the section applying this requirement to community associations. So this upcoming (dreaded) requirement has disappeared for community association housing. Click here to see the amended bill.

But let me take a moment to comment on this issue. This bill was triggered by six deaths from a collapsed balcony in Jun of 2015. Association Reserves stands on the principle of setting our clients up for an improved future. A balcony collapse should not be a part of anyone’s future.

I do not know the reasons this requirement was removed. I do know that some have argued that this bill was not applicable, while others have argued it would have been financially burdensome for struggling community associations. I agree that the cost of compliance may have been “significant”, and we addressed the mechanism for how an association can afford this expense in a prior blog post. . But I would argue that associations have a responsibility to afford many expenses in our complicated modern world, including those that provide owners with a reasonable expectation of safety. As such, I encourage those of us in the community association industry to never hide behind the excuse that “associations can’t afford it”.

Posted in Blog | Comments Off on California’s SB 721 (aka the Deck Inspection Bill) – Poof it’s Gone!

Is Choosing a Reserve Study Provider all about Price?

I found this article thought-provoking.  I read the article from the point of view of a professional who has been serving non-profit community association clients for over 30 years. In tracking the reason we are not selected after submitting a Reserve Study proposal, our #1 reason is “Decided not to do”. So they were “window-shoppers”. Our #2 reason is “Went with some else less expensive”. As our client base consists of not-for-profit organizations, to a degree I understand their price-sensitivity.

But I don’t understand foolishness.

“Cheap” is very different from “value”. I’ve heard it said that you should measure a product/service not by what it costs, but if its value is more than its cost. In a sense, it is easy for us (Association Reserves) to state who we are and what we do, because after 30 years in the Reserve Study field, having completed over 45,000 Reserve Studies for clients in all 50 states, with over 80% of our clients returning for updates, this means clients have found us to be a good value. We’ve demonstrated ourselves to be a known, trusted quantity. Associations don’t hire us and walk away disappointed.

This is especially significant in the Reserve Study field, because our clients trust us to craft a long-term financial plan: anticipating expenses and making recommendations that will take years before the quality of our work is revealed. So that’s perhaps why I’m so proud of our client retention #’s.

We will always have a competitor who will be less capable and take less time to provide a Reserve Study for less money that is less effective in identifying the upcoming expenses and financial needs of the association. But those “cheap” engagements don’t lead to fruitful communities with maximized home values, free of periodic special assessments.

That’s what I want, “partnering” with my clients to help them make wise decisions about finances that leverage their assessments towards creating a great place to live. An “improved future”, in other words. That doesn’t come with a “cheap” mindset. We may cost a little bit more than the low-cost bidder, and that’s ok with me. I believe our clients will agree.

Posted in Blog | Comments Off on Is Choosing a Reserve Study Provider all about Price?

Skimping on Reserve Contributions Doesn’t Save you any Money!

What’s better – $50/mo Reserve contributions (as part of your condo’s total monthly assessment) or $70/mo? All other things being equal, I’d rather pay a $50 monthly bill than a $70 monthly bill. But… not all other things are equal.

Let’s say you live in a 80 unit condo, and the Reserve Study finds your association needs $5600/mo in Reserve contributions to offset ongoing deterioration and prepare for upcoming Reserve projects. That works out to $70/unit, each month. But the budget is tight (author’s note… isn’t it always?), and the board wrestles with and proposes $50/mo, because other costs have increased and hey “something’s got to give” in order to stay within their targeted assessment increase.

So the association needs $70/mo from each owner, but is only going to get $50/mo. From a purely short term view, no big deal. But I hope the alarm bells are going off in your mind. The association needs $5600/mo to prepare for roofing, carpeting, a replaced lobby entry system, and all the other components in the Reserve Study. There is a 100% chance all those assets are going to fail and need to be replaced, and you can’t pay for those projects with imaginary money.

What happens when that happens? In the short term, no big deal. You pay for any necessary Reserve projects from Reserves. But the alarm bells get louder… the Reserve Fund gets smaller. Eventually there will be a special assessment, when the funds don’t exist for these projects that the board saw coming years in advance (cue more alarm bells from increased liability exposure).

The special assessment forcefully takes from the owners the funds that they kept in their pockets while they were enjoying lower Reserve contributions. So the homeowners never really “saved” any money. In addition, in a recent study we found (not surprisingly) that home values in condo associations with weak Reserves significantly lag behind home values in associations with a strong Reserve fund. So there’s a bigger factor in play than if Reserve contributions are paid on a monthly basis or via “catch-up” special assessments.

Bottom line: the cost of deterioration never goes away, even if ignored. The roof will rear its ugly head and need to be replaced, usually close to “on schedule”, just like all your other components. If ignored, not only will the association get backlogged with deferred maintenance (the cost to repair which often exceeds original cost estimates), property values get dragged down. Save $20/mo on your Reserve contributions, and your owners will pay it all back by means of special assessments, or worse, with lost home values. As you’ve heard before, there is no free lunch.

See a related short video here.

Posted in Blog | Comments Off on Skimping on Reserve Contributions Doesn’t Save you any Money!

Adequate Reserves – (Finally!) Defined

Many, if not most Governing Documents require the Board to set aside “adequate Reserves” to care for the common areas. But what exactly are “adequate Reserves”?

I was recently challenged to define the concept of adequate Reserves by a number of attorneys and D&O carriers. The attorneys wanted to know how to give liability exposure counsel to Boards to help them avoid claims of “inadequate Reserves”. The D&O carriers wish to understand what is and isn’t responsible behavior, as it affects their loss exposure from claims levied by disgruntled homeowners.

So I enlisted a number of Reserve Study providers from other esteemed Reserve Study firms across the country (among them Mitch Frumkin from Kipcon, John Poehlmann and Ted Salgado from Reserve Advisors, Peter Miller from Miller Dodson Associates, and Bob Browning from Browning Reserve Group) to join me in crafting a long-needed definition. It is not yet endorsed by any governing body, but I’m excited to share our results with you:

“Adequate Replacement Reserves” is defined as a Replacement Reserve Fund and stable and equitable multi-yr Funding Plan that together provide for the timely execution of the association’s major repair and replacement expenses as defined by National Reserve Study Standards, without reliance on additional supplemental funding.

This definition combines two concepts: the size of the Reserve Fund (measured by cash or Percent Funded), and a responsible multi-yr Funding Plan. It takes both for an association to claim they have adequate Reserves. A small Reserve fund which requires crippling high Reserve contributions may pencil out as “cash positive”, but one would not describe their situation as “adequate”. On the other hand, an impressively large Reserve fund in an association that is recklessly making inadequate contributions is also not “adequate”, as such a Reserve fund will soon require supplemental funds in the form of a loan or special assessment. In addition, our expectation is that the component expenses will be all reasonably foreseeable projects that meet the standard National Reserve Study Standards four-part test, not just a few carefully selected components in the next X years, or a short list of required components that barely meets a local statutory requirement.

So “adequacy” is not defined as a particular cash balance, Percent Funded, Funding Methodology, or Funding Goal. Adequacy it also is not defined by the type (or date!) of your most recent Reserve Study update. So I present to you the above definition of “Adequate Reserves”. Now Boards and industry professionals know what that means!

Posted in Blog | Comments Off on Adequate Reserves – (Finally!) Defined

How to Fund California’s SB 721 Deck Inspections?

In a previous post, we described how the requirements of California’s proposed SB 721 (safety inspections of decks and balconies in multi-family buildings) would not be satisfied by a Reserve Study site inspection. So the question now becomes, if this Senate Bill becomes law, how will associations deal with this new expense?

As it stands now, SB 721 requires the first inspection be performed by 1/1/2024, and every six years thereafter. And because this inspection must to be performed by a licensed building professional, it will likely not be an incidental cost easily absorbed without effect in the association’s ongoing Operational Budget.

Per National Reserve Study Standards, Reserve expenses must meet a standard four-part test: that it address a common area maintenance responsibility, that it must have a defined life cycle, that it occurs on a predictable manner, and that it be above a minimum threshold of significance. So the association’s cost for a scheduled, regularly recurring significant expense like a safety inspection for common area decks or balconies (even “exclusive use” common area private balconies) clearly meets the National Reserve Study Standard four-part test.

This is a project that the association should discuss with their Reserve Study provider, where they share the cost projections they have received for the inspection project, and their expected timing to perform the first project. Handling this expense through the Reserve budget allows funds to be collected evenly and fairly over six years, resulting in the funds successfully being ready at the appropriate point in time.

Posted in Blog | Comments Off on How to Fund California’s SB 721 Deck Inspections?

Real Estate Claims of “Strong Reserves” – Be Careful!

We subscribe to a media monitoring service that scours the internet for any “mention” of our company name.  We do this to measure our influence in the Reserve Study industry and identify hot issues or trends.  With a company name like “Association Reserves”, we’ve had to refine our account settings to avoid the inevitable “such & such Association reserves the right…” and other irrelevant web posts.

But one trend that continues to surprise me is how often claims of “excellent condo association reserves” and “strong association reserves” appear in our weekly monitoring reports.  By following the links, I discover that these phrases appear on condo listings from major real estate marketing sites including Redfin, Trulia, and Zillow.  This raises many questions in my mind: What is the basis of such a claim? Are any of these major firms concerned about liability should the listing agent be making unsupported claims? It’s one thing to state “great views” or “gourmet kitchen”. It’s a very different matter to state claims about a measurable condition!

Reserve Strength-RE

As the founder of a company that has prepared over 45,000 Reserve Studies for Association-governed communities in all 50 states and over a dozen foreign countries, I know of only one way to determine the strength of a Reserve Fund. It’s not a feeling or observation, it’s called a Reserve Study. I also know, based on 30 years in this industry, that only small fraction of the 380,000 associations in the United States have had a Reserve Study prepared by a credentialed provider within the last three years. Of those that have, about 70% are underfunded.  That means very few associations can support a claim that they have “strong Reserves”! For the others? It’s a mystery, leaving prospective buyers to worry about special assessments and the association’s ability to perform common area repairs & replacements in a timely manner (supporting their home’s value).

Prospective buyers should go cautiously into a purchase transaction without the full disclosure that a recently updated, credible Reserve Study provides.  It seems to me that anything less, including a seller or listing agent’s “feeling” of strong Reserves, is risky ground.

Posted in Blog | Comments Off on Real Estate Claims of “Strong Reserves” – Be Careful!

(CA) Senate Bill 721: Deck Inspections and Reserve Study Inspections

In California in the first half of 2017, Senate Bill 721 has been proposed, a bill which requires all exposed decks/walkways more than 6 ft above ground, in structures containing three or more multi-family units, to be inspected before 1/1/2023 and every six years thereafter. This inspection requirement is designed to ensure that these surfaces are in generally safe condition and in adequate working order. As written, the inspection is to be conducted by “a licensed architect, licensed civil or structural engineer, or an individual certified as a building inspector or building official”.

I do not have an opinion on the merit of this new inspection requirement. That is for others to discuss. My concern is the arguments I have heard challenging this new law, specifically with regard to condominium associations. Some have argued this law is not necessary, as all the common areas are required to be evaluated by a “diligent, visual site inspection” as part of a Reserve Study update at least every third year (CA Civil Code §5550(a)). So why would an association need a specific deck inspection now and every six years into the future when they have a Reserve Study inspection every three years?

Because even the best Reserve Study site inspectors, including those with the “Reserve Specialist” (RS) or “Professional Reserve Analyst” (PRA) designation are generalists, looking at the cyclical deterioration of the common areas. Reserve Study professionals are looking for where the roof is in its life cycle, where the fence is in its life cycle, where the pool heater is in its life cycle, and (specifically) where the deck sealant is in its life cycle. Even the best and most experienced Reserve Study professionals are not inspecting for moisture intrusion, inappropriate flashing or coatings, fundamentally flawed design (or sloping), etc. The bottom line is that Reserve Study professionals are not inspecting for safety or the well-being of the residents. Reserve Study professionals are inspecting for budget purposes.

In conclusion, if safety inspections are needed for the elevated decks and walkways of residential buildings in the State of California, don’t expect that task has been, or will be performed as part of the association’s every-three-yr With-Site-Visit Reserve Study inspection.

Posted in Blog | Comments Off on (CA) Senate Bill 721: Deck Inspections and Reserve Study Inspections

The Benefit of Updating your Reserve Study Annually

Reserve Studies are budget planning and disclosure documents prepared to help the board meet their responsibility to care for the assets of the association. Many of the association’s common area components are so large that the association needs many years to prepare for those expenses financially. So what happens when Boards don’t update their Reserve Study for years, and instead make decisions based on outdated information?

Reserve Studies involve an evaluation of the current physical assets of the association, and a projection forward of ongoing deterioration, contributions, and expenses. This information quickly becomes outdated, perhaps as soon as weeks after it is prepared.

Many states require Reserve Studies to be updated on a particular basis, with the most common being states that require updates based on a diligent visual site inspection every third year or every fifth year. So are these intervals “good enough”? What happens when we compare associations updating their Reserve Study every three or five years to associations updating this key information annually?

Associations who update their Reserve Studies every five years enjoy a 35.1% decrease in special assessments when they shift to updating their Reserve Study annually.

Associations who update their Reserve Studies every three years enjoy a 28.5% decrease in special assessments when they shift to updating their Reserve Study annually.

It doesn’t matter what your local State Law says: special assessments are disruptive, divisive, and predictable years in advance everywhere. Put time on your side by updating your Reserve Study annually, significantly lowering your exposure to special assessments.

SA Risk - UpdatingRead more here:

Are annual Reserve Study updates required in California?

Why annual updates lower your special assessment risk

Posted in Blog | Comments Off on The Benefit of Updating your Reserve Study Annually

EQ Retrofitting in Los Angeles, 2017

by Steven Beltramo, Project Manager, Association Reserves

The Issue:

Homeowners and Association Managers need to be aware that the City of Los Angeles has passed Ordinances 183893 and 184081, city laws that require the earthquake retrofitting of buildings that fall below current safety standards. The ordinance is intended to reduce the risk of injury and loss of life that may result from the effects of earthquakes. In this article we will address how these Ordinances relate to community associations and their Reserves.

Does this Apply to Me?

The City of Los Angeles is preparing and sending Orders to Comply to approximately 15,000 buildings determined to be at-risk: multi-family buildings (4 or more units) built to standards predating 1/1/1978. Generally these will be multi-story wood buildings with ground-level parking under living space. An easy way to check if your building is affected is online at http://zimas.lacity.org/. Follow these steps: search your building in the look-up bar. Click the “jurisdictional” tab, then click “building permit info view” and a list of all permit information will come up. This tool only works for properties within the City of Los Angeles.

Addressing the Issue:

If your association receives an Order to Comply, you essentially have seven years to complete your retrofit project. Your first step should be to hire a licensed professional engineer to confirm the City’s preliminary diagnosis, seeking a waiver if your building has been incorrectly identified as being at-risk. If your building requires a retrofit, it will be expensive. Depending on your building’s design, ballpark costs will likely be $10,000 – $25,000/unit.

Can I pay with Reserves?

Your Reserves are for predictable repair and replacement projects. The Reserve fund for most associations is already “underfunded” for existing Reserve components, so associations should not consider their Reserves as readily available for this new project. In addition, the amount of funds needed for EQ retrofitting is overwhelming compared to the size of the typical Reserve fund as a whole (even if your Reserves are Fully Funded). Finally, because the retrofit ordinance is a legislated mandate, this project does not meet National Reserve Study Standards for a Reserve expense. If this project is (inappropriately) added to your Reserve component list, it will overwhelm your other Reserve projects and mask the true condition of your Reserves.


Depending on the timing of your existing Reserve projects, you may be able to borrow some Reserve funds (perhaps $500 to $1000/unit) to seed this retrofit project while other funding (one or more emergency special assessments enacted by the board, or a loan) is established. Civil Code 5515(d) allows an exception to 12 month “borrowing from Reserves repayment” rule in cases such as this.

Bottom line: retrofitting will be expensive and may create a trying few years, but could save your life when “the big one” hits!

For more information click here.

Posted in Blog | Comments Off on EQ Retrofitting in Los Angeles, 2017