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

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.

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!

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

What Are Reserve Studies & How To Select A Provider?

“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.

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