Property Management And Reserve Accounts
To the homeowner, the idea of reserves or replacement funds involves recognizing that the house will need painting, the roof will need replacing, and the driveway may need to be redone. Most homeowners learn quickly to put money away for “a rainy day”.
The same applies to a condominium or homeowners association. The association must maintain the common areas of the property. Of course, these associations have to maintain the integrity of the buildings, grounds, common areas, and amenities.
The process of foreseeing into the future is the very essence of the reserve and replacement process. The Board of Directors is responsible for the financial well-being of the association and for the process of funding of the future repairs and replacements. This responsibility should not be taken lightly by the Board of Directors, who typically are volunteers and often times not knowledgeable regarding repair and replacement reserves.
The Board of Directors should investigate the services of a professional management company. Professional management will make the appropriate recommendations regarding reserves, however the Board and membership have the ultimate decision on the reserves. A sign of a well managed association will have a healthy reserve program to fund future repairs and replacements.
When one hears the word maintenance, you might think of something needing an immediate fix. However, maintenance includes planning for the replacement of all of the items that will wear out during the life of the structure. A property that is poorly maintained may not retain value for the property owners.
The lack of reserves or replacement funds in a community may be taken into consideration by potential buyers. Potential buyers are interested in possible special assessments that may replace or supplement poorly funded reserve accounts. Lenders such as mortgage companies and banks may refuse to grant loans on properties that demonstrate a shortage of reserves or replacement funds. Many lenders will ask for the financials records of the association for up to two years, including the budget, to assist in their evaluation of the property.
A lack of reserves in an association also exposes the residents to high and frequent special assessments in older communities, poorly maintained communities, and weather disasters. In addition, not all residents in a community may be able to absorb the financial responsibility of a large assessment, whereas reserve amounts, taken out of the monthly maintenance assessment are easier to swallow.
Michael Mattiace is a licensed Community Association Manager in Florida for the past 16 years. He has managed an assortment of small to large associations, created budgets, supervised maintenance projects from the very small (ant piles) to the very large (concrete restoration). Visit his blog for lots more advice at http://www.AskThePropertyManager.com
