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.

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!

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.

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.

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:

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!

PAVING ISN’T SEXY: BUT PROPER PAVING MAINTENANCE IS ESSENTIAL

When was the last time you thought about your parking lot? The honest answer, probably, is not in recent memory.  It’s not a question of ‘out of sight –out of mind.’ Parking lots and other paved areas are highly visible, but they aren’t all that interesting.  There is nothing sexy about asphalt but paving maintenance is very important.

A well-designed, nicely manicured landscape will get your attention; a nicely-paved parking lot – not so much.  As a result, paved areas don’t always get the maintenance attention they need, and that is a potentially serious problem for both the owners of commercial properties (shopping malls, for example) and the homeowner associations that manage residential condominium communities.  A poorly maintained parking lot is not only an eyesore, detracting from a property’s curb appeal; it is also a liability risk:  Customers or residents who trip over cracks or whose cars are damaged by potholes are going to sue the property owner.

Paved areas, if well-constructed and well-maintained, can last between 25 and 30 years or more, depending on where they are located and how they are used.  Unfortunately, parking lots, sidewalks and driveways are often afterthoughts — the final items on a construction checklist, undertaken near the end of the project when funds are low and the developer’s attention is waning.

Doing Paving Maintenance Right

Pavement isn’t complicated.  It begins with good soil compacted properly to create a stable base that should be covered by two layers of asphalt ― a base course on bottom and a wearing course on top. There is some disagreement about the desired thickness, but no question that the thicker the asphalt layers, the longer their life.  The industry standard calls for a combined thickness of between 2.5 and 5 inches, with the top layer thicker than the bottom.

Only about half of the parking lots we inspect meet that standard.  Most fall short and many fall well short, with both layers sometimes totaling less than 2 inches.  If the asphalt layers are too thin, if the underlying soil is poor, or if the area isn’t paved uniformly the surface will form holes, crack and split, requiring constant repairs and premature repaving.

Harsh winters and the damage inflicted by the steel blades of snow plows take a toll in New England and other cold climates; extreme heat and exposure to the blazing sun do the damage in the south and southwest.  Pavement in hotter areas may require the application of a sealant (to smooth over holes and cracks) in less than a year after being laid; pavement in colder climates may not need sealant for five years, and possibly not all, but it will benefit from efforts to mitigate the damage inflicted by snow and ice.

You can’t skip the snow plowing or the application of de-icing materials, but some of those materials are harder on asphalt than others. It’s worth asking your snow removal contractor for recommendations.  Proper application of the material is also essential; adding more salt won’t necessarily improve its effectiveness, experts say, but it will increase the cumulative damage to paved areas and reduce their useful life.

Poor drainage can also accelerate deterioration. Even the best-laid surface will be compromised over time if water “ponds” on it instead of draining properly. You can spot evidence of ponding even if it isn’t raining. Areas of discoloration (shadows) and collections of dirt, twigs and other debris are red flags indicating a drainage problem.  A decent slope and catch basins, on the other hand, suggest that the contractor was thinking about proper drainage

Paving Maintenance Guidelines

All pavement, however well or poorly-constructed, requires proper care. Paving maintenance schedules will vary ─ some paved areas will require attention sooner or later than others — but the protocols will be essentially the same.

A few small cracks here and there will be the first sign of wear. They will usually appear between the three- and five-year marks, and filling them will be the first line of defense. The important thing about cracks is, small ones will quickly become larger, so you don’t want to ignore them. They represent both a safety hazard (people can twist their ankles or trip over them) and a structural concern. Water can seep through the cracks causing damage below the surface of the asphalt. In warm climates, the water will unsettle the soil, pushing the clay up against the asphalt and accelerating the deterioration process. In New England, water will trigger a destructive freeze-thaw-freeze process in the winter, which will also shorten the asphalt’s useful life.

You can deal with small cracks by filling them in. Contractors typically use a melt-in substance that won’t shrink after application. This is the product highway crews use because of its durability and ease of application. It is sold under several retail brand names, all variants of “hot-applied crack sealant.” Experts suggest that you fill cracks every two or three years, as part of a regular maintenance plan. If cracking becomes more widespread, you can take the next step, which is to apply a sealant to the entire paved area.

Resurfacing and Replacing

As asphalt ages, one or more sections may begin to break up or flake, indicating that the surface is beginning to deteriorate. Patching will probably take care of the problem, at least for a while. But you don’t want to just pave over the failed area ― a shortcut some contractors might suggest; you want the contractor to cut out the area, fill in the subsurface and then pave over that. This will give you a sturdier, longer-lasting repair, but it is still a temporary fix ─ a band aid, not a cure.

At some point — and the hope is it will be later rather than sooner in your pavement’s life ― deterioration will accelerate, repairs will become more frequent requiring more aggressive and more expensive responses.

One option is to resurface the area ─ either lay a new surface over the existing one, or remove the old asphalt and pave the area anew. These options make sense if the underlying soil base is stable. But remember Einstein’s definition of insanity (doing the same thing repeatedly and expecting a different result). If the old surface failed prematurely because the underlying soil wasn’t’ stable, a new surface laid over that unstable soil won’t wear or fare any better.

It’s time to start over. The contractor should remove the old asphalt, scoop out the bad soil, replace it with gravel and stone to create a solid base, and then lay the new pavement over it. That’s the traditional approach. A newer technique calls for pulverizing the old asphalt and using it as a base for the new pavement. In addition to creating what contractors say is a “super-solid” base, pulverizing the old asphalt eliminates the cost of trucking it away and disposing of it at a hazardous waste site. Either technique will give you nice, new pavement that will last another 25 or 30 years or more.

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.

Determining how long a building component will last before it requires repair or replacement is one of the primary tasks in performing a Property Condition Assessment (PCA). Other professions rely on existing tables to render such opinions. For the engineer, the assessment is much more subjective.

The terms Useful Life (UL), Estimated Useful Life (EUL), and Remaining Useful Life (RUL) are commonly used in business. In the appraisal world, the term Useful Life is defined as the economic period during which a positive cash flow is expected for the improvements. For accountants and tax advisors, the term means the period to depreciate the asset.

Generally, the Useful Life of most assets is defined by statute. Many states publish lists of depreciable assets including personal property, land, buildings, and infrastructure. The National Association of State Comptrollers has even published a survey of Useful Life ranges by state.

There is varying specificity as well as varying values among the states. However, the practitioner, whether he or she is an accountant or appraiser, does not have much leeway in making the determination. As we will see, in engineering, the definition may not be as clear-cut.

ASTM Definitions for a PCA

ASTM E-2018-01, the Standard Guide for Property Condition Assessments (PCA), defines the terms as follows:

Expected Useful Life (EUL) – The average amount of time in years that an item, component, or system is estimated to function when installed new and assuming routine maintenance is practiced.

Remaining Useful Life (RUL) – A subjective estimate based on observations, or average estimates of similar items, components, or systems, or a combination thereof, of the number of remaining years that an item, component or system is estimated to be able to function in accordance with its intended purpose before warranting replacement. Such period of time is affected by the initial quality of an item, component or system, the quality of initial installation, the quality and amount of preventive maintenance exercised, climatic conditions, extent of use, etc.

These values are used to calculate estimated capital expenditures and reserve requirements for properties while performing a PCA.

Engineering References

Engineers may use certain published guidelines as a place to start when determining the EUL. The American Society of Heating, Refrigeration, and Air-conditioning Engineers(ASHRAE) has long published a listing of the life expectancy for most HVAC components. Examples of the more common components are as follows:

In the 1990s, Fannie Mae, in its Guidance to the Property Evaluator, published a more comprehensive reference list of building “items, components, or systems.” These are primarily for residential applications, however. Marshall & Swift provides similar values for commercial applications, subdivided by the quality of the component. Selected examples of the Fannie Mae data are offered below.

The key point is that these are only reference points. They do not account for all the variables listed in the ASTM standard. Therefore, the judgment of the engineer is a critical part of the process. The engineer evaluates how these components are actually used and adjusts the Remaining Useful Life based on that evaluation. The difference can be dramatic and may have a significant effect on the viability of the financing or acquisition.

Cost Segregation Studies a Hybrid Application

In recent years, the line between engineering and accounting and appraisal has blurred slightly by the addition of several new services. Cost Segregation Studies seek to “segregate” the costs attributed to the non-permanent building systems from the building itself so that they can be placed on a more aggressive depreciation schedule. In doing so, the owner is able to recover more cash in the early stages of building ownership that can best be put to use elsewhere. This process combines the estimating skills of the engineer with the tax skills of the accountant. Building components are placed in different categories (5-year, 7-year, 15-year) for depreciation purposes. There is little room for interpretation here but the IRS requires engineering expertise to accurately reflect cost.

Building Life Even More Subjective

Recently, we have been asked to provide estimates of the Remaining Useful Life of whole buildings. This need is most often occasioned by the net lease marketplace wherein, as a condition of the lease, the lessor seeks to ensure that the building will last longer than the term of the lease. Marshall & Swift publishes a guide, used mostly by appraisers, that provides estimates of building useful life based on building type and quality. According to the guide, few buildings have a Useful Life greater than 50 years although we all know of buildings that are 100, 200 or older. The engineer, in this case, must determine if and why the Useful Life would be longer than the published data. He uses current condition, use, and maintenance operations to make that determination. An important point, however, is that this determination is not an economic one. Buildings may be put to different uses over their lifetimes, and the current use may not be the most economical or appropriate use in the future.

What’s the Answer?

So how long will it last? The answer is: it depends. The experience and judgment of the engineer are critical factors in coming up with a reasonable answer to this very important question.

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.

You can learn more about our Property Condition Assessment (PCA) services.

“Assessment increases and stronger reserve funds will be needed to repair aging properties” was the number one prediction of experts surveyed by Common Ground, the magazine of the Community Associations Institute.

The most important element of credible reserve studies is valid component data.

Recent legislation in several states also emphasizes properly funded reserves and cites reserve studies as a necessary procedure in estimating funding requirements.

Capital Reserves are for projected repairs and replacements. Items such as regular periodic (non-annual) repairs (e.g., painting), irregular periodic repairs (e.g., deck surfacing), foreseeable failure, catastrophic failure, and outdated design/aesthetics may be included in a Capital Reserve budget.

Scope of Services

The standard, or full reserve study consists of five elements. The Component Inventory is the task of selecting and quantifying Reserve Components. Condition Assessment is the task of evaluating the current condition of the components. Life and Valuation Estimating establishes the Useful Life, Remaining Useful Life, and Repair or Replacement Cost estimates for the Reserve Components. Fund Status is determined by projecting the current and future funding of the Capital Reserve Account against current and future repair and maintenance requirements. The Funding Plan is intended to create options for achieving the desired funding levels to offset anticipated expenditures.

It is critical at the outset of any project to clearly define the scope of services. Annual maintenance items are typically excluded from a reserve study. The minimum scope of service may also be defined by statutory regulation.

Standards of Reserve Studies

In 1998, the Community Associations Institute adopted National Reserve Study Standards. The standards define three levels of service (a full reserve study as defined above, an update, and an update without an on-site visit), definitions of various terms, and the contents of the report. The standards also create the professional designation Reserve Specialist. The designation is awarded by CAI to individuals with the appropriate background, experience, and references, following a review of their work by the Reserve Specialist Designation Board.

State Legislation

Prompted by foreclosures and mismanaged properties, a number of states have already passed legislation governing the management of Common Interest Realty Associations (CIRAs). Among those that have passed legislation are Alaska, California, Florida, Hawaii, Illinois, Indiana, Massachusetts, Michigan, Minnesota, Oregon, Texas, and the District of Columbia. Some states address reserve studies broadly. Others are more specific.

For example, the California Davis-Stirling Common Interest Development Act states in part: At least once every three years the board of directors shall cause a study of the reserve account requirements of the common interest development to be conducted if the current replacement value of the major components which the association is obliged to repair, restore, replace or maintain is equal to or greater than one-half of the gross budget of the association for any fiscal year.

Florida statutes are even more specific. These accounts shall include, but are not limited to, roof replacement, building painting, and pavement resurfacing, regardless of the amount of deferred maintenance expense or replacement cost, and for any other item for which the deferred maintenance expense or replacement cost exceeds $10,000. The amount to be reserved shall be computed by means of a formula which is based upon estimated life and estimated replacement cost or deferred maintenance expense of each reserve item.

How to Select a Reserve Study Consultant

The most important element of a credible reserve study is valid component data. Inaccurate cost information, improper assessment of the condition of each component, and failure to examine ways of maintaining components to prolong their useful life can lead to underfunding or, almost as problematic, overfunding of the reserve account.

Reserve studies are a professional opinion. The value of that opinion is directly related to the knowledge and expertise of the person rendering it. Always ask the consultant for references and a statement of experience and qualifications. Even this may not tell the whole story, however. Here are some other factors to consider.

• Is the consultant locally based? Materials and their performance will vary according to regional preference and climate.
• Does the consultant thoroughly understand building systems? Databases work only for typical systems and components, not actual ones.
• Does the consultant have the ability to diagnose problems, design repairs, and oversee construction? A reserve study also includes an evaluation of defective components and systems in need of immediate repair.
• Will the consultant be available for questions and follow up? Often, there is a need to explain the findings to the board or individual members.
• Does the financial model have credibility? The model and format should be prepared by someone with an accounting background and comply with the guidelines of the American Institute of Certified Public Accountants.

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.

Contact us to discuss learn more about our HOA Reserve Study services.