Basement Seepage, Building, Home Owners Association (HOA), Maintenance, Water
posted by Ross Hardy

Water, Water, Everywhere

Typically when I am discussing water problems with the condo’s property manager or the board, the focus is on leaking roofs, foundations, windows, or other building envelope points of water infiltration. Instead, this article’s focus will be on water damage problems from inside sources and their prevention.

It is hard to talk about inside water damage without also considering a lengthy discussion of insurance matters, but I’ll try. The short answer is both the board and the unit owner should confirm the correct policies are in place. The association’s master insurance policy review should determine if the policy covers both as-built and upgrades (i.e. betterments and improvement clause) or just the walls, floors, and ceiling. The unit owners should consider sewer/ drain back-up coverage, if the policy does not. Keep in mind, insurance adjusters are looking for ways to avoid claim payouts. They will look for the source of the water and whether it was caused by accidental reasons or old age wear and tear; lack of maintenance; or your negligence.

So why is internal water damage such a big deal? It is because it is the number ONE insurance claim in the nation beating out other high profile claims including tornadoes, hurricanes, and wildfires. And it is growing. 1 in 50 homes experienced an internal water claim in the five year period of 2013 to 2017 per Verish Analytics ISO who provides insurance industry statistical data. This 5-year claim rate of 2.05% per dwelling is up from the prior 5-year statistical period rate of 1.44%. This equates to an average $10,000 per claim and $13 billion in total claims for 2017. It’s a big deal.

So why is this happening? The short answer is the trends in condo and HOA development and the aging of residential building inventory across the country. The burst in condo development in the 1980’s and 2000’s have resulted in many more water sourced appliances in risky locations. Many homes built in the last 20 to 30 years have laundries on the second floor instead of the more traditional basement location where a leaking hose could be dealt with a mop and bucket.

Some homes can have more than 40 water connections including washing machines; water sourced heat pumps; ice makers; wet bars; filtration systems; extra bathrooms; dishwashers; garbage disposals; indirect hydronic floor heat; and the list goes on. This partially explains why fire damage claims in the US have declined while water claims have increased, not only in numbers but in amount. High-end properties are the worst for this increase in water claims. For homes valued greater than $500,000 the claim sizes have doubled since 2015 while homes valued greater than $1 million have tripled in size according to the Wall Street Journal.

So what’s a property manager, board, or unit owner to do? Protect the home. Needless to say, each condo or HOA complex has its own factors of importance. These factors must be considered and a plan should be established to minimize the potential problems each type of complex should address. One place to start is the creation of a central maintenance log to record all reported internal water events to determine if there is a trend or pattern. An aging condo may have experienced a rash of washing machine hose leaks. This may prompt the property manage to notify unit owners to inspect their own hoses for wear or even hire a plumber to inspect all of the units’ water sourced appliances. Another HOA may have a population of ‘snow birds’ who should be cautioned to maintain their unit thermostats at a certain level to avoid pipe freeze up while they are vacationing in warmer climates. Sometimes a global reminder to all unit owners of the location of their central water shut off valve for future water emergencies is a good ounce of prevention.

Needless to say, no matter how much a property manager or board thinks about internal water damage, it often comes down to the individual unit owner being responsible to maintain the unit. Investing in water sensors at some risky or perennial problem locations may be money well spent. Educating the unit owners through the association’s newsletter or web site is also a step in the right direction. Reminders of the importance of maintaining caulk in the tubs and showers; hose connections for all appliances; and periodic observations around the home looking for developing rust; drywall damage; and pooling water can go a long way in preventing a trickle becoming a sea of trouble.

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Article written by Jack Carr, P.E., R.S., LEED-AP, Criterium Engineers

Published in Condo Media May 2019 edition

Download a PDF copy of this Condo Media Article

Cost Segregation Studies

Taxpayers who spent at least $500,000 to purchase, build or renovate a building in the last 15 years may be sitting on a huge tax benefit. How do they find out? They do a cost segregation study.

Depreciation enters significantly into the financial performance of commercial buildings. Typically, property, exclusive of land, is depreciated over 39 years. Certain improvements or renewable materials (e.g., carpets) may be depreciated more quickly. These calculations have been part of the financial landscape for years.

What is not as generally known is that many of the costs embedded in a new, or even an existing, building can be segregated into categories that also allow for more rapid depreciation. This tax benefit is not new but is often overlooked by building owners and even many of their accountants.

If you own a commercial or apartment building that has been bought, built or reonovated recently without a Cost Segregation Study (CSS), you may have missed a significant opportunity for cash savings. the good news is, you still may be able to utilize this modern tax planning tool. CSS is the latest element added to the typical due diligence process of having a consulting engineer perform a building inspection with an optional environmental site assessment.

Whereas due diligence focuses on reducing future liabilities of physical or environmental problems with a property, a CSS focuses on impriving the project’s cash flow through reclassifcation of the property’s asset lives with the purpose of accelerating depreciation expenses, and thus lowering federal taxes.

The benefit of a CSS can be substantial, with potential net present value savings of more than $50,000 for every $1 million of property value.

Even if years have passed since purchasing the property, the IRS allows the taxpayer to recapture lost depreciation all in one year without having to file amended returns by simply filing Form 3115 to notify the IRS of the change in accounting after the retroactive CSS.

Though the advantages of improved cash flow in the early years of a real estate investment are obvious, many side benefits of a CSS are realized in multi-tenant properties.

When a tenant prematurely vacates a space, a CSS can be used as the basis to document the value of the space’s assets to be written-off and to use the tax savings to fund marketing of the space or future tenant fit-up.

All real estate investors have different tax circumstances, therefore, it is very prudent to obtain the advice of your tax consultant before initiating a CSS.

Most of the area’s commercial brokers and accounting firms are becoming familiar with this powerful tool. After a little research, the rewards can be very worthwhile.

What is the purpose of Cost Segregation Studies?

Cost Segregation Studies (CSS) are designed to provide a defensible document to support accelerated depreciation of real estate. The purpose is to reclassify 39-year assets to more tax-favorable asset classes with 5-, 7- or 15-year lives. By converting “brick and mortar” assets (depreciated in a straight-line method over 39 years) to “personal property” assets (depreciated on a double-declining basis over 5 years), the real estate owner receives earlier tax depreciation expenses, thereby improving the cashflow from the property. The benefits of a CSS are best measured in Net Present Value (NPV) savings. Typical examples of personal property include architectural millwork, electrical and plumbing supply to personal property, movable partitions, security systems, exhaust equipment, decorative lighting, emergency generators, land improvements, signage, wall and floor coverings and window treatments.

The table below provides an example of potential savings:

SHOPPING CENTER EXAMPLE

Personal Property	5 yr 200% db	–	0%	$600,000	12%
Personal Property	7 yr 200% db	–	0%	–	0%
Land Improvements	15 yr 150% db	–	0%	$1,000,000	20%
Real Property	39 yr sl	$5,000,000	100%	$3,400,000	68%
_________________		__________	_____	__________	_____
TOTAL		$5,000,000	100%	$5,000,000	100%

Deferred Taxes: $475,755 NPV of Taxes Deferred: $253,127

What is the basis in law for CSS?

Cost Segregation Studies began to be performed in earnest following the IRS issuance of Rev. Proc. 96-31 in 1996, which allowed taxpayers to correct mistakes in the depreciation of their assets. After several minor tax court cases were found in favor of taxpayers using CSS methods, the IRS accepted this procedure. What gives the true strength to the taxpayer’s position is that the tax courts have ruled that the case law created for the Investment Tax Credit, before the ITC’s demise in 1986, is applicable to CSS methods. As a result, CPAs have felt comfortable with the estimating and asset life reclassification that occurs in a CSS report.

When should a CSS be performed?

A CSS is most applicable to buildings that are newly built, newly acquired, or about to be acquired. Newly constructed buildings are ready candidates because material and construction costs have generally been calculated already. Recently acquired existing buildings are also good candidates if a significant amount of depreciation has not already been taken. Even after a few years, assets that should have been reclassified can be recaptured in the current tax year. A CSS also makes excellent sense during the due diligence phase for new acquisitions. At the time that they perform a Property Condition Assessment (PCA), your consultant may also be able to perform a CSS. This approach not only saves times and money, and sets you up to depreciate your asset properly from the beginning, it also may factor into the purchase price, enabling buyers to be more competitive.

What types of properties benefit most from a CSS?

Real estate investments best suited to undergo a Cost Segregation Study include:

real estate construction valued at over $1 million
building acquisitions or improvements
new buildings under construction
existing buildings undergoing renovations or expansions

Properties with the best savings potential include:

office buildings
shopping centers
restaurants
hotels
warehouses and distribution centers
manufacturing and industrial plants
medical facilities

Who can perform a CSS?

The IRS requires a detailed study by “experts” to support claims for shorter recovery periods. These experts must be judged as independent (performing Cost Segregation Studies on your own is strongly discouraged) and have the credibility to be able to estimate costs reliably. That is why most Cost Segregation Studies are performed by engineering companies, often in concert with an accounting firm or the client’s CPA.

What is the process for performing a CSS?

The CSS can be conducted in parallel with a Property Condition Report, an Environmental Site Assessment, or done independently. An engineering firm reviews available site plans, construction drawings, purchase documents, and other information to assign values and classify the assets. Through site visits and document reviews, a determination of the value of the land and building is made. The CSS team then “dissects” the property to identify all personal property, reclassify the assets, and develop engineering estimates of their value. This includes estimating building systems that are not visible such as buried utility systems and those hidden behind walls, floors and ceilings. Soft costs that are capitalized are also considered in the reclassification analysis. All personal property assets are categorized as needed, and tabulated into summary statements for the client’s CPA to use for tax filing. Results for the current tax year for new purchases are entered per Rev. Proc. 2002-19. For a prior year’s purchase, there is no need to amend the prior year’s returns or K-1s. The CPA files an “automatic” Form 3115 to advise the IRS of the method change. Please call Criterium Engineers for a quote.

The Engineering Advisor is intended to enhance your knowledge of technical issues relating to buildings. For additional information on any subject, please feel free to call us. Our commitment is to provide you with timely, accurate information.

More information on CSS and you can check out our Cost Segregation Study services

Basement Seepage, Construction, Drainage, Maintenance
posted by Kyle Hardy

Basement Waterproofing – How do you keep water out of a basement?

Maintain proper drainage

Basement Waterproofing - How Do You Keep Water Out of a Basement

A cost effective approach to basement waterproofing is to maintain with perimeter surface drainage conditions. The importance of proper drainage and landscaping (mature trees) around a foundation cannot be over emphasized. Poor drainage around the foundation is the most common cause of foundation problems and basement moisture problems. Drainage and moisture control around the home include proper ground slopes away from the foundation. It also includes keeping your gutters clean and the downspouts functional. Not doing so, allows the water from the roof to overflow the gutters. This water then runs along the foundation and in turn can cause basement seepage or foundation movement.

New Construction Basement Waterproofing

In new construction, cast-in-place concrete foundations are more resistant to water penetration than concrete block. Bituminous waterproofing should be used, at a minimum, to seal the outside of any foundation wall, however. An effective perimeter drain system should be installed to collect water from around the foundation and under the slab.

The National Association of Home Builder’s booklet on dry basements entitled, “Basement Water Leakage – Causes, Prevention, and Correction,” recommends perimeter drains on the inside and outside of the foundation. These drains should either flow downward to a gravity outlet (natural drainage) or to a sump where the water can be discharged with a sump pump.

A building built in a wet site should take advantage of additional waterproofing; a membrane system. One example of a membrane system consists of multiple layers of impervious material applied in a hot tar mopped system to the outside of the foundation. Special attention should be paid to the joint between the wall and the footing. The concrete floor and walls (whether block or concrete) should be reinforced to minimize cracking.

Existing Construction Basement Waterproofing

A water problem in an existing basement can only effectively be dealt with by:

rewaterproofing the outside of the foundation walls and/or
upgrading the exterior foundation drainage system

Both approaches require excavation around the outside of the foundation.

There are alternatives which will intercept the water using a channel-like system around the interior of the foundation wall to collect and guide the water into a sump and discharge it using a sump pump. These systems do not correct the water problem but they do control the water once it has entered the basement in a way that minimizes problems related to water entry. Such systems, while dealing more with the symptom than the cause, are typically less expensive because they can be accomplished from the inside.

Ultimately, when dealing with a basement water problem, the tried and true conventional methods working from the outside are still the most reliable.

Basement waterproofing and existing building, or rewaterproofing, the outside of a basement wall requires excavation to the full depth of the wall, careful cleaning of the wall surface and proper application of bituminous waterproofing. A multi-layered membrane system should be used if the surrounding water conditions are severe. At the same time, a perimeter drain system should be installed, similar to the recommendations noted above for a new foundation. If there are cracks in a wall, the cracks should be chipped out to form a V-groove along the length of the crack approximately one inch deep. The V-groove should then be sealed with a good quality epoxy or silicone caulking, filled with mortar and covered with bituminous waterproofing.

Epoxy injection

An effective, but sometimes expensive alternative, is epoxy injection into the crack. This can be done from the inside. The epoxy bonds with the concrete and creates a somewhat permanent seal against water penetration. The limitations to this system are cost and effectiveness, depending on the size of the crack. The smaller the crack, the less likely it is that full penetration injection is possible. However, before undertaking expensive excavation around the outside of a foundation, you may want to get proposals from local epoxy companies to compare the cost and potential effectiveness.

Basement water is controllable but there is no easy answer. Only the more complex and sometimes expensive approaches are truly reliable.

Peaceful Coexistence

Peaceful coexistence is sometimes an appropriate resolution to a basement water problem. While keeping water out of a basement may seem ideal, there are risks. Preventing water from entering an older stone or concrete block foundation can cause water to accumulate on the outside of the foundation walls increasing water pressure on the walls themselves. The result can and has been total failure of the foundation wall. Where the construction of the foundation wall is marginal or questionable, the better approach to water control is to permit the water to enter, collect it into an interior drainage system, guide it to a sump and pump it away.

Check out our Residential Services to learn more about how we can help!

Commercial Engineering, Property Condition Assessment (PCA)
posted by Ross Hardy

Commercial Building Inspection – PCA Due Diligence

Buyers of commercial real estate are concerned with the financing and economics of their acquisition. Until recently, the condition of the building was only a relatively minor concern. That is changing with PCA due diligence.

The initial impetus for carefully evaluating the condition of the building were the failures and foreclosures at the start of the decade. Financial institutions were forced to deal with buildings that were not maintained and needed substantial work.

Next, regulations such as The Americans with Disabilities Act (ADA) created certain imperatives for building owners to upgrade facilities. Seismic codes were, and continue to be re-written. New environmental and ecological concerns surfaced.

Then, changes in the way buildings are financed created a need for a more formal and complete look at the condition of the building and the capital reserves required to maintain it. As more commercial mortgages are securitized, the rating agencies on Wall Street – Moody’s, Standard & Poor’s, etc. – now require that property condition surveys be part of the due diligence process.

The Evolution of a Practice

The first type of engineering service to be almost universally required was the Phase I Environmental Site Assessment. Initially, there was no standard for the service. Vague requirements made it difficult for commercial developers, owners, and financial institutions to be confident that their environmental due diligence would be defensible in court. Enter the American Society for Testing and Materials (ASTM) and the development of E1527: Practice for Environmental Site Assessments.

Property condition surveys and reserve studies have not yet become so standardized. Firms in the business, each have their own format. Each financial institution has their own scope. FannieMae and FreddieMac individually created their own guidelines for multifamily properties.

Appropriate qualifications have not been defined. Financial institutions require firms are acceptable to the rating companies. The rating companies look to the financial institutions to select qualified firms. Finding the best firm for the job can be difficult.

But things are changing, just as they did for environmental inspections. The effort at standardization is being driven by the rating companies themselves. Standard formats have been developed. Most engineers in the field are aware of these formats and can provide them in a timely fashion.

Such consistency enables the engineer to understand the scope of services requested, and makes it easier for all to review the reports. Some of the key features of the engineering study are:

A review of documents, interviews with owners and occupants, and a site visit
The development of a list of current deficiencies and a list and schedule of repair/replacement costs for building components, and a projection of these costs during the life of the mortgage plus two years.
Commentary on the condition of the building and any observed or recorded code violations or safety hazards.

What to Expect in the Future of PCA Due Diligence

With PCA Due Diligence, clear expectations for both environmental and engineering services, commercial building owners, buyers, and financial institutions can expect to see some significant changes in the way service is provided.

First, necessary services are being consolidated under one roof. Buyers can now purchase both engineering surveys and environmental assessments from the same company. Consolidation simplifies the process, reduces costs, and shortens the time frame in which services are provided. Criterium Engineers has offered both services for a number of years. Firms are looking to consolidate other services as well, such as appraisals and surveys.

The second trend is to provide broad geographic coverage. Firms experienced in this work have tended to have only one or a very few offices. That required that they send people all over the region or country. The result was higher cost and lower quality since the engineer was not necessarily familiar with local conditions. Companies that specialize in this work are now trying to build networks to cover broader geographic areas. The Criterium network of 65 national offices – 6 in northern New England – is a perfect vehicle for providing high quality, rapid and consistent service, at an affordable rate.

How Can I Be Sure of Getting the Best Service?

There are a number of things that owners and buyers can do to ensure the best and most expedient service.

Ask whether the engineering firm is familiar with the due diligence requirements for Commercial Mortgage Backed Securities (CMBS), Real Estate Investment Trusts (REITs) and the like. Even if you are not going this route, the financial institution may use the standards of the rating agencies when reviewing your application.
Inquire as to the qualifications of the individual doing the work; the person on site. Some firms, in trying to provide broad geographic coverage, may use poorly qualified or inexperienced individuals. The eyes and ears of the engineer are the most valuable part of the service. And be sure to inquire if licensed engineers or architects are being used. There is a difference.
Be sure to provide accurate and reliable information to the engineer. Construction drawings, maintenance records, and access to maintenance staff should all be readily available during the site visit.

Learn more about our PCA services.

Maintenance
posted by Ross Hardy

Hidden Dangers of Dryer Vents

Who would think venting a unit’s clothes dryer was so complicated? When was the last time the cleanliness of dryer vents was on your Board’s meeting agenda? Yet, clothes dryers may be one of the most dangerous appliances in the home. The U.S. Consumer Product Safety Commission reports there are more than 15,000 home fires each year directly related to dryer maintenance and overheating with blocked exhaust venting contributing to half of those fires. Dryer venting falls in the category of what you can’t see, can hurt you.

Safety Tip: Prevent dryer fires by cleaning the dryer vent, exhaust duct and lint screen/filter periodically.
— US Consumer Product Safety Commission (@USCPSC) May 26, 2017

Just as condo units and their buildings come in many shapes and sizes, so does dryer vent systems. It is not unusual for new Boards not only not understand the exact nature of their condo’s in-unit dryer vent system but they also are not certain who is responsible for its maintenance. Most dryer vent ducts pass through common space, except for HOA unit owners who are responsible for their own building envelope and everything within. Some condo dryer vent ducts are dedicated to a given unit while others are shared with other units. Many dryers vent pass through an exterior wall while mid-rise and high-rise condo buildings share a vertical rooftop vent system.

With these different types of systems and variances often found in the governing condo documents, it is not always well understood by the Board members who is responsible for maintenance and repair of dryer duct systems. This includes basic routine cleaning even if it is clear maintaining the in-unit dryer is part of the unit owner’s responsibility. This is an important issue to resolve with the assistance of your legal counsel, as it is the first step in meeting the Board’s responsibility to oversee the safety of the units’ venting system and its occupants.

Once dryer vent system maintenance responsibilities are understood, a policy should be put in place. This policy should provide authority for unit access and performing maintenance and repairs when owners fail to comply with the dryer policy including assessing charges to the unit owner incurred by the association in providing the required dryer maintenance. The policy should specify the required maintenance including cleaning of the dryer vents and ducts on a scheduled basis, typically every two years. Often communities will engage a dryer maintenance contractor at a bulk rate to provide a cost effective and consistent maintenance program. Should a unit owner opt out of this service they would be required to provide proof of compliance of the required maintenance being conducted by others.

Before the dryer maintenance program can be implemented, the Board must understand their system. This may require the assistance of a maintenance repair contractor or the association’s building engineer who will need to inspect the present system. This inspection may reveal common and shared duct systems; long duct runs with booster in-line fans; improper duct materials. As an example, any vent duct found to be vinyl, PVC, or flexible is a problem. Most of these types of vent ducts are violations of the local and national building codes, as their interior surfaces collect lint creating a build up of highly flammable material as well as a medium to collect water whose weight can bend duct pipe and create an environment susceptible to mildew and mold. Improper duct should be removed and replaced with smooth-walled metal ductwork. If flexible duct is found forming an elbow at the rear of the dryer, it should be replaced with non-flexible metal elbow duct so as not to be crushed when the dryer is pushed against the wall.

The policy may set specifications on the type of dryers to be allowed in units. Not all dryers are the same. Beyond the differences between electric and gas-fired dryers, some dryers have significantly different exhaust characteristics. Building codes recognizes this by allowing the manufacturer to specify the maximum length of straight vent duct to be used. This typically can range from 15 to 90 feet. This duct length is further defined by reducing the allowable length by 5 feet for every 90 degree bend and 2 ½ feet for every 45 degree bend in the duct. For this reason, the policy should provide specific direction to unit owners of the minimum type of dryer performance allowed as well as advising the unit owner of the length of duct the dryer will be connected. Some associations even place a placard at the duct wall connection with this information for future dryer installations.

In hiring the dryer maintenance contractor the Board should take the normal insurance precautions as when hiring any contractor, including coverage for general liability; automobile liability; workers compensation and umbrella liability coverage with key required endorsements. These are needed to protect the association from both having to defend itself as well as pay damages as a result of the contractor’s activities while also including additional insured endorsements; waiver of subrogation endorsement; and primary/non-contributory wording.

The contract with the maintenance contractor should specify the method of cleaning the dryer duct. Typically the cleaning is a combination of extendable brushes and vacuum cleaning. The scope of work should include specific clarification of disposal of duct debris both inside and outside the building. Safety issues should be addressed, particularly regarding movement of gas-fired dryers.

Dryer vents maintenance policy can include some preventative maintenance guidance to unit owners. Unit owners should be advised to report unusual dryer performance including longer than normal drying times or the dryer surface or clothes feeling hotter than normal. The owners should also report their observations of the outside louver on their dryer vents not opening as much as before. Excessive humid or burnt smells in the laundry area are all signs of blocked exhaust vent duct. The recognition of dryer malfunctions and a good preventive maintenance policy will ensure the common safety for all.

Dryer Vents are just one aspect we inspect in our Home Owners Association Services.

Home Owners Association (HOA), Transition Study
posted by Kyle Hardy

Transition Study, Reserve Study. What’s the Difference?

Most home owners association board members understand what a reserve study is and the beneficial role it plays in managing the financial future of the community association. Another study that comes up for recently constructed associations and is equally as important is the transition study.

A reserve study analyzes the capital items that the association is responsible for maintaining, which typically include Criterium-Hardy Engineers - HOA Home Owners Association Transition Study & Engineering Services roofs, siding, and concrete. The reserve study provides information regarding each item, including its life expectancy, and the cost to replace it in the future. Specifically, a reserve study is looking to see if and when the item will deteriorate due to ordinary wear and tear. A transition study, on the other hand, has a narrower purpose.

This type of study identifies and documents potential construction or design deficiencies. The key word with a transition study is “defect.” For example, a transition report would reveal such items as roof leaks, water infiltration, or concrete settlement caused by poor craftsmanship or design. A cost estimate to remedy the defect is normally provided as part of the analysis.

Each study is also different in purpose. The purpose of a reserve study is to assist the association in future budgeting for the cost to repair its capital items. Throughout the life of an association, maintenance and repair is an ongoing issue that the board continually needs to address. For example, even if a roof was just replaced, the association should immediately begin to budget for future roofing repairs and costs based on the life expectancy of the new roof. On the other hand, a transition study, ideally just occurs once at the time the property transitions over from the developer’s control to the homeowner board. At this juncture, some high quality developers will even order the transition study so that they can turn over the property with a “clean bill of health.”

More frequently, the association’s board orders a transition study when it takes over control of the association from the developer. When transition occurs, a transition study should immediately be ordered. The study then serves a twofold purpose. First, it can be forwarded to the developer along with a demand to address and repair any deficiencies or construction defects. Since an independent, unbiased evaluator performs the study, it generally has more leverage in pressuring the developer to voluntarily comply with correcting the defects. If the demand and further negotiations prove unsuccessful, the transition study can alternatively be used as evidence in litigation to force the developer to pay for needed repairs.

By requesting a transition study, the board also ensures that it has fulfilled its fiduciary duty. The study serves as an independent, expert analysis that the board can use to make sound business decisions in terms of properly addressing construction defects. Just like with reserve studies, a transition study takes the guess work out of identifying repairs, the cause for repairs, and the costs.

Although similar in some respects, the reserve study and transition study serve very different purposes. The reserve study can and should be ordered and then updated in the future to accommodate the ordinary wear and tear that the common elements will suffer, whereas the transition study looks back in time to discover defects caused by the developer or its contractors.

Learn more about Criterium-Hardy’s Reserve Study services.

Building, Construction, Construction Management & Monitoring, Renovation
posted by Kyle Hardy

Construction Specifications – Keys to a Successful Job

Managing a capital budget and expenditures for a community association involves greater responsibility and risk than it does for one’s own home – the key is construction specifications. This article addresses some of those differences and ways to control the process to assure a positive outcome and it starts with construction specifications.

Construction Specifications - Keys to a Successful Project!

As homeowners, when there is a major capital expenditure, like a new roof, we call a few contractors to get some competitive bids. Then, we ask a few questions, maybe check some references, and hire the contractor with the lowest cost that we feel will meet our needs.

As board members or managers of community associations, however, the jobs are larger and the money involved is far greater. This also means that the risks and potential liability are increased as well.

For example, the simple task of obtaining competitive bids can result in quotes that are widely divergent. Because costs are greater, the variation can be significant. Criterium Engineers has often been called by property managers to help explain why contractor bids are so far apart. The answer most often is that the quotes are not truly comparable. In other words, it’s not apples to apples. In order to compare bids, we require detailed construction specifications, without them a project is likely going to fall off track and budget.

Roof replacement is one good example. Different contractors may choose different materials. One may remove the old roof; another may not. One may include costs for permits, disposal, and cleanup; another may not.

The way to get comparable bids is through a specifications process. It is also the way to get a job that meets your needs and perhaps considers money-saving alternatives. A specification prepared by a licensed Professional Engineer is almost certain to include elements that you may never have thought of and ultimately protect your interests as a manager, board member, and as an owner.

What are Construction Specifications?

Construction Specifications are a set of documents that define the scope of the job and the expectations for the contractor. Among other things, it generally includes:

Drawings that illustrate construction details
Documentation of:
- All things that must be covered by the quote
- The manner and format in which the quote is to be provided
- Methods and materials to be employed (see below)
- Conditions under which the work is to be performed (e.g., not before 8AM or after 6PM)
- Required insurances
- Form of agreement to be used
- Warranties to be provided
- Responsibilities of the association vs. the contractor
- Procedures for effecting changes
- Construction schedule
- Terms of payment
- Site conditions that must be maintained before, during, and after the work is complete
- Standards and regulations that may govern the work

There are two types of construction specifications, generally referred to as Performance Specs and Prescriptive Specs. In a Performance Specification, the engineer lays out the expectations for the job, that is, how the systems and materials are to perform now and over time, leaving it to the contractor to identify those systems, materials, and method of installation to accomplish the objectives of the specification. For example, a Performance Specification for a roof could be as theoretical as that it must keep the rain out under all conditions and must last 20 years. In more practical terms, the specification may state the type of roof (e.g., EPDM) but decline to name the manufacturer, method of adherence, etc.

A Prescriptive Specification, as the name implies, lays out much more specifically how the job is to be done, what materials are to be used, and the manner in which they are to be installed. For example, a Prescriptive Specification for a roof would most likely list the type AND manufacturer, all details and methods of fastening, etc.

Engineers generally rely on a variety of standard specifications from entities such as the Construction Specifications Institute (CSI) and MasterSpec (AIA). These documents serve as a framework, providing boilerplate and standard clauses, but a true and good specification starts with a field visit to observe actual conditions, and then continues with research to select the right approach.

Value Engineering and Construction Specifications

Developing a specification is the perfect time to consider alternative approaches for the repair or replacement of key systems. Sometimes, a new approach can result in cost savings over the original design. At other times, a different approach may result in greater durability or reliability, thereby reducing costs over time, even though the initial outlay may be more expensive now. Value is the relationship between cost and benefit. Value Engineering, when properly done, is more specifically about the relationship between cost and function. It is generally a “like for like” substitution that generates a cost savings, either initially or operationally, without sacrificing function, intent, or performance of the original design. When developing a specification, the engineer can either perform the Value Engineering himself (Prescriptive Specification) or ask the contractor to propose alternatives (Performance Specification). Either way, the association wins.
Liability for the Board and Property Manager

One of the key differences between owning your own home and sitting on a board representing a group of owners is that you now have a fiduciary responsibility to those owners.

While most board members would not think of awarding a contract to someone just because he was a friend, it can be just as risky to hire any contractor if proper care in the selection has not been exercised. The engineer that developed the specification is also able to assist with pre-bid meetings, contractor selection, and kick-off meetings.

To illustrate how serious this can become, we were recently subpoenaed to produce documents in a case that involved shoddy work by a contractor. While the contractor is the key defendant, so are previous board members and the property manager. Being able to demonstrate that contractor selection followed an industry-accepted, professional, and objective procedure is your best defense in such a case.

Conclusion

Developing a specification for any significant capital expenditure is the best way to ensure comparability of contractor bids, a quality job, and avoid exposure to liability. The best part is, it may actually save money on the overall job. Specifications are developed by engineers or architects who are familiar with the design and installation of building systems. If chosen properly, that person could well be the same engineer who originally developed your reserve study and is familiar with your specific property. We would also strongly recommend hiring that same engineer to monitor the actual construction, repair, or replacement to ensure compliance with the specification. That’s why a local, experienced engineer is the best choice “For the Life of Your Association.”

Learn more about our Construction Management and Monitoring services.

Home Inspection
posted by Kyle Hardy

The Advantage of Using a Licensed Engineer for Home Inspection

Contact Criterium-Hardy for your Home Inspection Needs! Home Inspection is a critical process – you need an expert on your side! The term “home inspector” can be a self-issued title. In the state of Missouri, any person can claim to be a home inspector and perform a home inspection. It is up to the buyer to seek out a home inspector with qualifications you can trust.

One important qualification is to make sure your home inspection is completed by an inspector that belongs to a professional organization such as ASHI, American Society of Home Inspectors. Organizations such as ASHI require inspectors to meet experience-based criteria and adhere to a set of standards during the inspection process. However, if you are looking for an inspector with the most in-depth experience and knowledge of major systems, structures, etc. you should look to hire a home inspector who is also a licensed professional engineer (a.k.a. P.E. or Professional Engineer.)

Professional Engineers not only have a Bachelor of Science degree in Engineering, but also have been registered by the Missouri Board for Architects, Professional Engineers, Professional Land Surveyors and Landscape Architects. An ASHI certified home inspector is qualified to find the symptoms that a house presents, but many times they will suggest the consulting services of a Professional Engineer for further evaluation and problem resolution. This can be an expensive and time consuming addition to the home inspection process. Hiring a home inspector who is a licensed engineer can save you the additional fees of consulting that may be necessary. It will also give you the peace of mind that you are getting the MOST professional advice that is available. Hiring a licensed professional engineer to perform home inspections can ultimately save you time and money.

We provide comprehensive home inspection and other residential engineering services!

Home Owners Association (HOA), Reserve Studies
posted by Kyle Hardy

Seven Things You Need To Know Before Conducting Your Next HOA Reserve Study

One of the primary business duties of Home Owners Associations is maintaining and preserving property values of the Association’s common property. To do this properly, Home Owners Associations must develop funding plans for future repair or replacement of major common area components. An HOA reserve study is a budget planning tool that identifies the current status of the reserve fund and establishes a stable and equitable funding plan to offset the anticipated future major common-area expenditures.

1. All HOA Reserve Study preparers are not equal.

There are a number of ways to evaluate the qualifications of the person or firm whom you are going to retain to perform your study. Key factors when making your decision should include the following: knowledge and experience of the provider, ability to understand the clients’ needs, local expertise and availability, quality control and accountability, and professional education. A key to evaluating this qualification is to have this portion of the work performed under the direction of a licensed Professional Engineer (PE), as the license confirms that the person has been trained and educated in performing this type of evaluation.

2. All Reserve Studies are not equal.

Until just a few years ago, most reserve studies included a list of all of the components, their replacement cost, and remaining useful life in order to determine what the next years funding should be. After many years of discussion and development by the Reserves Committee of the Community Associations Institute, it was agreed by the leading Providers from across the United States that all Reserve Studies should include not only this “Physical Analysis” but also a comprehensive “Financial Analysis”. This is now the standard. The physical analysis is important because it determines the existing condition and actual expected life of the common elements. The financial analysis focuses on the planning and budgeting of replacing these common elements, and includes a cash flow projection of the reserve fund over a 20-year period.

3. Full Funding of a HOA Reserve Study may mean that you are over funded.

There are a number of different “Funding Goals” which are recommended for use as the basis for your Association’s future reserve fund planning. “Baseline Funding” is when the cash flow projection reaches $0 at some time over the projection period. “Component Full Funding” is based on keeping every individual component within the Study 100% funded. In most instances, this will result in a significant amount of funds, which are never used during the cash flow projection period. “Threshold Funding” is when the amount in the fund during the cash flow projection period is based upon keeping a minimum balance within the fund. “Statutory Funding” is based upon the establishment of the amount to be funded as dictated by the local state requirements.

HOA Reserve Study Funding

4. The Replacement Costs included within a HOA Reserve Study should consider replacement alternatives, not just replacement with the exact same component or system.

In many instances the original component, which is being replaced, either is no longer available or has become outdated since it was first installed. By making recommendations for alternatives to the initial installation, the Association may be able to install a replacement component or system with a significantly longer life, such as a new type of roofing system, or a component or system which is much more energy efficient such as a new HVAC system. In both cases, this will result in either a reduction in the recommended contributions to the Reserve Fund or a reduction in your energy costs.

5. The Reserve Study can be used for much more than just estimating the Association’s contributions to the Reserve Fund.

The Reserve Study cash flow analysis can also determine how the Association’s Reserve Funds can be invested. They give the Association the ability to plan for the actual replacements, therefore making it easier to negotiate more effectively with contractors. An investment plan can be established to maximize the return on these funds based upon when they will be needed.

6. The HOA Reserve Study will not be the only funding the Association will need for the upkeep of the common elements.

The Reserve Study is only for the major repair or replacement of the common and limited common elements that are the Association’s responsibility. A reserve fund is intended to cover non-annual maintenance, repair and capital improvement costs. If the proper maintenance is not performed, it can result in a significant loss of useful life for the reserve components.

7. The actual cost of performing the replacement work, when it occurs, may vary from the costs included within the study.

In preparing the reserve study, the replacement costs that are used are based upon both industry estimating standards as well as the actual cost of similar projects that have been performed. Actual costs at the time work is done are influenced by many variables, and in order to keep the replacement costs as well as the anticipated useful lives current, the Reserve Study should be updated (including a site visit) on a regular basis.

Learn more about the Reserve Study.

Home Owners Association (HOA), Maintenance
posted by Kyle Hardy

Spring Into A Building Maintenance Schedule

With Winter drawing to a close, your residents are eager to replace their snow shovels with tennis rackets – it’s time to think about building maintenance! Now is the time to implement an ongoing building maintenance plan that will save your association time and money for many seasons to come.

View your association as a complete network with many important pieces working together, and ensure that each system is functioning properly. Here are 10 building maintenance tips your community can do now to keep your association in spring-ready shape: Spring Into A Building Maintenance Schedule for Your HOA

Drainage pathways. Clearing out your drains on a regular basis will ensure they are free of debris when spring rolls around. Spring months are notorious for high quantities of rain no matter where you live! Avoid the potential of blocked drainage systems by habitually cleaning them every other month.

Gutter and downspout repairs. Cleaning gutters is never an easy task but it’s a necessary one with spring rainfall! Try reaching into the gutter with a pair of large tongs to dig out leaves; placing a garden hose and turning on the water full-blast also works (but watch out below!). If the gutters are dry, and the roofs are walkable, leaf blowers make fast work of any debris in the gutters.

While you’re on the ladder, inspect all spikes, straps, and clips to ensure that they are securely fastened.

Close the foundation vent covers until summer. In the Midwest and Southern states, foundation vent covers are often left open during the summer months to allow for ventilation and airflow. However, in the winter and spring, the vent covers should be closed to prevent the warm inside air from leaking out. Closing your vent covers during the winter will save on energy and heating costs.

If you have a basement, check your sump pump regularly to ensure its operation throughout the rainy season. Water run off can create an overload of moisture that your sump pump may not be able to handle. Perform monthly inspections of the pump by opening the sump pit’s cover to clear any debris out of the bottom of the pit.

Replace snow stakes. It’s a common mistake to replace the snow stakes only once a year, usually at the beginning of winter. The stakes can be the first thing to be damaged after a heavy snowfall, particularly if the payloader knocks it over!

Do not remove snow from roof. Snow removal can be the cause of more damage than the actual snowfall itself. Most buildings are designed to handle snow, and it is very rare that even a large storm will dump enough snow to cause damage that will seriously harm your homes’ roofs. Let the snow melt naturally with Spring’s rain and warmer temperatures.

Landscaping plans. For associations in more temperate climates, the landscaping can often take a hit during the cooler months. Recover quickly by bringing in your local specialist and discussing the various shrubs and flowers that will need to be planted in spring.

Sendout paint bids for summer work. The major advantage to getting your bid requests out early is the extra time and accessibility your vendors are likely to have. Outside work requests often drop during cold weather, and getting a head start will ensure your association is at the top of their list during the summer rush!

Security enhancements. Now is the ideal time for associations to make the security enhancements they’ve been thinking about all winter. Security fencing and an alarm system are two timely projects for the post-winter months.

Replace smoke detector batteries. The batteries in all smoke and carbon monoxide detectors should be changed at least twice a year. The changing seasons are the perfect reminder to replace all batteries throughout the association.

Many maintenance projects have a double bonus – they will improve the appearance of your association while preventing costly repairs or replacements down the road. By undertaking some maintenance tasks now, you can lessen the costs that many associations rack up in the rush to recover from winter.

From the HOA Leader site, here’s a HOA Maintenance Checklist. Criterium-Hardy provides comprehensive HOA services, contact us to find out how we can help!

PAY

Reserve Study

PCA

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