Unless it's a thoughtful gift or a party in their honor, nobody likes surprises. That's especially true when it comes to sudden, serious, or non-negotiable repairs to a co-op or condo building. A building community must have enough money saved to deal with major projects as they arise, or risk major financial and structural troubles. But economic woes of residents such as unemployment or default, or living on tight fixed incomes, means more HOAs are finding it difficult to keep their reserves adequately funded.
But ignoring this important savings fund puts both community administrators and residents on a path to inevitable problems. Reserve funds play a crucial role for an association, and neglecting them may seem okay now—even prudent—but doing so can compound a maintenance issue into an out-and-out crisis.
Reserve Studies 101
“When you’re managing a facility, whether townhomes, co-ops or condos, there’s a responsibility to the common areas that isn’t the responsibility of the individual owners,” explains Alan Mooney, P.E., president of Criterium Engineers, a nationwide consulting firm with its largest and oldest office, Criterium-Tauscher Cronacher in Manhattan. Within that, Mooney says, there are two categories: one that covers general annual maintenance costs and the other that addresses non-annual work, “the things that you wouldn’t put in a normal annual operating budget.” A reserve study identifies this second group of items. This may include costs of regular updates on major building systems like hot water heaters and elevators. It also should include enough for unpredicted repairs.
The reserve fund is the money that an association puts aside to meet the needs of that reserve study. Finding the right firm to handle your reserve study entails some homework on the part of the board. Look for someone with established professional credibility. Some licensed architects may conduct reserve studies but they are typically handled by a licensed professional engineer.
If you’re considering someone without either of these professional licenses, check to see if they're a reserve specialist or RS, the certification for which requires a number of completed courses of study, plus references. In order to earn an RS designation, “Basically, you have to demonstrate a legitimate track record,” Mooney says.