As a professional Reserve Study provider, we guide associations towards having sufficient funds for the major common area repair and replacement projects their association will face. We may provide counsel, but the board remains in control of the association. So what are the biggest misconceptions we see among our clients? All our clients are well-intended, but we regularly see the same five costly thinking errors leading to decisions which end up being expensive or disruptive for their association. Read on, to avoid falling prey to them yourself!
1) Thinking that contributing 50% of our recommended reserve contribution will result in the association being 50% Funded
It takes a significant amount of cash to provide for the timely repair and replacement of the association’s Reserve components. But it only takes 10-15% more to add some “margin” to your Reserve Fund and be on-track to become fully (100%) Funded. Cutting Reserve contributions in half dooms the association to having inadequate cash, leading to deferred maintenance, special assessments, and a host of other problems.
2) Thinking that delaying a project will save the association some money
So common, but so wrong! Timely repair and replacement projects can go smoothly. But delays make problems bigger, and more expensive. It is all too common to see a $50,000 painting project turn into a $100,000 painting and repair project due to deferred maintenance and delays. Net effect – unnecessarily higher costs for the homeowners.
3) Thinking “it’s not my problem… it’s a future problem that someone else can deal with”
This reveals a fundamental misconception about Reserves. Roof, paint, asphalt, elevator, etc. all started deteriorating the day they were first installed. That includes last year, this year, yesterday, today, tomorrow, next week, and next year. Reserve contributions offset ongoing deterioration, not a vague expense far off into the future. The “cost” of ongoing deterioration is as real as any other “invoice” the association faces. If every homeowner were to pay their fair share, over the months & years they own a home in the association, the future will take care of itself.
4) Thinking it is not necessary to update the Reserve Study
Do you buy or sell stock based on outdated business news? Would a bank make a loan based on an old tax return? Good decisions require current information. Every year the conditions of your assets change, the cost of replacement changes, and your Reserve balance changes. Since Reserve contributions are typically one of an association’s largest budget line items, it makes sense to update that big line item annually. Not only is it a wise thing to do, but homeowners deserve an accurate update on the association’s preparedness for the care of the major common area assets, not a regurgitation of something out of date.
5) Thinking we can’t afford appropriately sized Reserve contributions
The problem is that this statement is just plain not true! Reserve contributions are relatively inexpensive for the average Condo association in the US, adequate Reserve contributions are typically $3-$5/unit per day. That’s about the cost of a premium coffee drink. Adequate Reserve contributions for Planned Developments are significantly less. So when people say their association can’t afford appropriate Reserve contributions, what they are really saying is: “I’d rather buy my favorite cup of brand-name coffee than pay my fair share of my home’s roof, paint, and asphalt deterioration.”
For many people “perception” is reality, even when perception and reality are quite different! The way something is regarded, understood, or interpreted leads to a mental impression that may not reflect the truth. But the people responsible for directing the Association finances and protecting the value of the properties within the Association are held to a standard of reality, facts, and the truth. Well-intended board members and Managers who are open to overcoming some “misguided thinking” can avoid many costly errors in judgement and decision-making.