Reserve Fund Studies - What Are They?

When I tell people what I do for a living, I explain first that I love my job.  It incorporates so many different aspects of being outside, doing tons of math, talking to people and educating them.  What do I do?  I prepare building component and financial audits for condominium corporations.  In short, I do Reserve Fund Studies.  I get questions that are both simple and complex and will attempt to address some of the main ones. 

What is a Reserve Fund Study?

A Reserve Fund Study is a document that assesses all of the common property and the current funding of a condominium corporation.  The study should make recommendations for future funding.  When assessing common property, quantities and condition should be determined.  

Reserve Fund Studies are required by section 38 of the Alberta Condominium Property Act (the Act), which states:

A corporation shall, subject to the regulations, establish and maintain a capital replacement reserve fund to be used to provide sufficient funds that can reasonably be expected to provide for major repairs and replacement of

a)  any real and personal property owned by the Corporation, and

b)  the common property

where the repair or replacement is of a nature that does not normally occur annually.

In layman’s terms the Act requires that an account be created to provide funding for the replacement or major repairs to all common property for which the corporation is responsible.  In order to create this account, money must be deposited on a regular basis to ensure that funds are available when required.  This protects the investment of every owner in his or her property.  When replacement of common property components is deferred for financial reasons, the individual units will suffer devaluation of the property.

Why do we need a Reserve Fund and a Study?

Some reasons for including section 38 in the Act are:

  • The conversion of some older rental projects into condominiums completed only aesthetic repairs.  Units were sold with insufficient reserve funds and a significant amount of deferred maintenance.  
  • Annual contributions were set extremely low by developers to increase buyer appeal.
  • Annual contributions were set too low by directors pressured by owners to keep them low.  The directors also failed to think about the corporation as a whole. 

How is a Reserve Fund Study done? 

When a condominium corporation contracts to have a Reserve Fund Study done, the steps below should be followed:  

  • All common property components should be measured, counted and their condition assessed.  In order to determine what is common property, condominium plans, bylaws and as-built-drawings are reviewed.  Discussion with the Property Manager, Board Members, on-site personnel and any existing contractors is advisable.
  • Replacement costs of each common property component are determined, and should include the cost of full replacement.  Phasing repair or replacement of components over time for financial reasons is not recommended due to the difficulties this will cause future Boards and owners.
  • The current funding is reviewed and compared to expected expenses.
  • Required funding scenarios are provided.
  • The study provider must submit a written reserve fund report to the Board for review.  

Most providers will not only attend a meeting to discuss the report with the Board and to answer any questions, but also will attend the Annual General Meeting (AGM) to discuss the report with the unit owners as well. 

What information is included?

Information that should always be in a Reserve Fund Study includes, but is not limited to, the following: 

  • The qualifications of the person(s) and/or corporation who completed the study.
  • Recommendations for reserve fund contributions.
  • A common property inventory and condition assessment for all components that may require replacement or major repair over the next 25 years.

Additional information that the Study may include is:

  • Spreadsheets showing funding scenarios.
  • Pictures showing the condition of common property.
  • Recommendations for investing.

Who should do this Study? 

In order to get a useful Reserve Fund Study, it is important for the Board to understand what they want out of it.  Boards should use the study as a planning guide.  This means choosing the right provider.  Studies vary from provider to provider.  Providers have different funding philosophies as well as financial planning ideas.  Questions the Board should ask providers when getting a proposal are:

  • Do you incorporate construction inflation? Some providers do not use construction inflation.  The result is that the price of the roof stays the same now as when it requires replacement in 10 years.
  • Do you incorporate a contingency and a safety margin? Contingencies allow for small errors in expected costs.  Safety margin amounts are useful as a buffer for the replacement of components that are not visible for inspection such as underground services.
  • What are the qualifications of the main person doing the study? When hiring a corporation – who is participating in the study?
  • What level of customization are you willing to provide?
  • Will they phase components at the Board’s request?
  • How many funding options will be provided?
  • What funding philosophy will be used?
  • How long will the study take once awarded?
  • Will a sample study be provided for the Board to review to ensure that the document is usable for their purposes?
  • What will the study cost?

The answers to these questions will assist a Board in determining which provider will best fit their needs.  Cost should not always be the deciding factor when choosing a provider.   

The Alberta Condominium Property Act states that a qualified person must do the study.  A qualified person is someone who has knowledge and experience in assessing depreciating property, the operation and maintenance of the property, and cost associated with replacement of the common property.  The Act does not say that you must have an engineering company perform the study.  Property Managers, accountants, real estate agents, and adjusters bring their own unique experience to the development of a Reserve Fund Study. 

When should a Study be done? 

Generally, a Reserve Fund Study should be completed every 5 years.  However, since the Board should use the study as a planning tool for operating the corporation, it can be done more often than every 5 years. 

New corporations must complete a study within 2 years of its initial development.  If the corporation is a conversion of previous rental units, then the study must be completed prior to any units being sold. 

There are no condo police to fine a Board when they do not complete a study every 5 years.  However, neglecting to have a study updated could cause the following: 

  • Insufficient funding of the reserve fund account.
  • Unexpected costs associated with failure of components, which usually results in special assessments.
  • Legal implications for Board Members.
  • Lower value of properties due to components not being replaced in a timely manner.

A Reserve Fund Study is a tool that the Board uses to help manage a corporation and its assets.  Therefore, it is important to find a provider who will produce a document that the Board can use.  

 

This article has been written by Sharon Bigelow.
Sharon is a Bigelow is a Reserve Fund Study Consultant in Edmonton, AB, Canada. You may contact Sharon at Phone: 780-965-0965 

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Wednesday, January 14 2015

Common Problems Condo Boards Face and How They Can Be Resolved

You may believe that volunteering in the board of directors of a condominium complex might be a great experience for you, but the truth is that there are several difficulties that condo boards face from time to time that make the job quite challenging. Disagreements, delinquencies, short-term problems, and long-term concerns are all quite common experiences in condo board management.

If you are thinking about joining a condo board, then knowing the most common challenges faced by condominium boards will help you out considerably. Some of these are detailed below:

Problems in Management

In a few cases, condominium boards fail to understand the methodologies utilized by a property manager. This is most likely to be due to the property management associations’ habit of using the best practices in their industry, which don’t always go along with the preferred ideas of a condo board.

These issues are quite common and more often than not, a condo board is likely to find its property manager’s approach quite irrational. The best way to tackle such problems is to make sure there is sufficient communication between the property manager and the condo board. This can help rectify any underlying problems or confusions on both ends. Furthermore, the board can even invite the property manager for a formal meeting to discuss the matter in a more precise manner.

Reserve Funding

Condo boards need to monitor their reserve fund levels quite closely. Furthermore, they should keep track of their savings and whether or not they have sufficient funds to take care of future maintenance requirements. If a condo board, or condo corporation to be exact, has large reserves with a decent number of assets that require managing, opting for a professional reserve fund study can be a good choice. In certain provinces and states, a reserve fund study is required by law every several years.

Shortfalls in Budget

The biggest challenge any condo board faces is a budget shortfall. If your condo board is facing the same problem, the main solution is cutting back on your unnecessary expenses. Raising condo fees or charging special assessments can also seem a suitable idea, the best way to deal with a budget shortfall is to postpone minor repairs and improvements until the budget has recovered.

Lack of Communication with the Condo Owners

Communication is perhaps the main reason why a condo board exists. If there is a lack of it between the board and the owners, all sorts of problems can arise. The sole reason as to why a condo board is created is to make sure none of the owners ever face any problems and all of their issues are effectively dealt with. Until and unless there is sufficient communication between the two parties, there possibly can’t be any progress on either end.

Serving on the board of directors of your condominium complex can be quite challenging. Nonetheless, it is likely to be an experience from which you can learn a lot. As long as you keep the above mentioned solutions in mind, you are likely to have an easier time volunteering for your condo board.

 
Monday, January 12 2015

Securing Condo Portals - Connect Securely to Condo Communities

Condominium Portal Security

Users often ignore the importance of a secure connection while reviewing a condominium portal. There is not much you can do about public forums, but with customized condo portals you are at liberty to choose according to your preferences. There is no denying the fact that features like chatting, exchanging files, and browsing normal internet is not encrypted. Within a condominium association, information you provide to your owners and residents must not compromise security over other features.

It means that the personal information exchanged by the users, their IPs and their identifications will be protected from external intrusions. SSL (Secure Socket Layer) is a medium layer which is highly encrypted and protects data to be accessed by any unidentified source. This is something all GeniePad accounts are protected with. The little lock in your address bar just as if you were logging into your bank account.

As customized portals allow users to communicate with each other via various methods it is very important to select a portal that allows secure access through SSL.

Here are some of the advantages of using a SSL certified portal.

1. Authentication

With so many proxy servers operating actively, it is very important to make sure that you are connected to the right server. SSL does not only allow users to enjoy encrypted data transfer but also ensures authentic connection. It means that, users don't need to worry about the server connection while communicating through the portal. Although it is true that a customized condo portal is reserved only for the member of condo community, portal IPs can be hacked. Therefore to avoid so it is very important to choose a server that allows connection through SSL.

2. Personalization

SSL is a data transportation layer designed especially for private communication. It distinguishes one personal network from the other and makes sure that a private network enjoys complete privacy. It is important for a community portal to ensure residents and management complete privacy. Condo portals can also serve the purpose of databases where the personal information of clients is stored. Therefore make sure that no other unauthenticated user can access the portal. Although once purchased you can fully administer the portal on your own; it is very important to choose a condo portal that includes SSL.

3. No Cross Connection

As a vendor or the condo portal company manages thousands of portals, it is very important to prevent cross connection between two portals. One way to avoid so is SSL encryption. SSL gives unique identity to every network and a cross connection is instantly detected because of the mismatched sender and receiver identities.

Condo portals allow communities to interact with each other and with the association board via an easy-to-access platform. All you need to have is a reliable internet connection and a computer. The technology has matured over years and is now considered as an effective condo management tool.   

Wednesday, January 07 2015

Buying Condos - A Guide for First Time Home Buyers

If you are thinking of purchasing a condominium unit, you must be well aware of the fact that condos are among the trending real estate properties and are experiencing the most transactions these days. This is mainly due to their affordability and convenience as they perfectly fit the requirements of both first timers as well as those homeowners who are looking to downsize their living needs.

There used to be a time when condominiums had a somewhat negative reputation among real estate properties. However, as of today, these units are earning much appreciation from prospective buyers and gaining quite considerable market value as a result. In some markets, condos are increasing in prices almost as rapid as the costs of single-family homes. The sudden spike in condominium unit purchases is mostly due to most condo owners finding out that these units were well worth the investment.

If you are also looking to avail the various benefits condos have to offer but don’t have much experience in real estate affairs then this guide will be quite helpful for you. First and foremost, before you consider buying any real estate property, let alone a condominium unit, you should know exactly what you’re looking for and exactly what you should be avoiding so you should end up regretting your purchase.

Some of the questions that you should have answers to, before you seal your condominium unit deal, are given below:

What are the monthly fees for the condominium?

Are there any unnecessary inclusions in the fee? Are there any additions such as extra charges for amenities you won’t be using in the fee? Consider scouting other condominium complexes nearby and compare their fees as well as additional charges with the one you are thinking of buying.

What is the reputation of the homeowners’ association looking over the condo community?

Consult your prospective neighbors, they’ll tell you how much satisfied they are (if they are at all) with the homeowners’ association service. Can they handle all kinds of repair and maintenance expenses or would they just leave them be? Make sure you ask the condominium board about the rules, by-laws, restrictions, covenants, conditions, and the latest financial assessments.

Does the community have its own property manager?

If the condominium community is handled by a professionally managed association that has their own professional condominium property manager looking after the community, it is probably the most favorable aspect for you. A professional manager will make sure the complex is properly maintained and all issues are dealt with accordingly.

How many renters are residing in the community as compared to owners?

You might want to avoid living in a condominium complex which has more renters than owners. This is mainly due to the fact that the more renters there are, the complex will remain busy with people leaving and moving in all the time. However, if you’re more of a people’s person then this is all the while better for you.

 
Thursday, October 16 2014

Booking Condo Amenities Made Easy With A Competent Portal Tool

When you set out to choose the ideal condominium for settling down with your family, you evaluate every property you visit, to see whether it contains all the basic amenities essential for a comfortable living experience or not. 

Whether you seek to rent the place or purchase it as your home, the condo that you choose should offer the basic supply of essential amenities like electricity, gas and water, along with some added beneficial features like close access to transport and grocery outlets. These things, though seemingly not that important, can mean all the difference once you settle down with your family in your new home. 

Condo boards and authorities are responsible for taking care of all the needs and requirements of all condominium residents. They are responsible for providing all necessary essentials while also taking care of all repair and maintenance work needed on the property. 

With the popularity of condos and the rising demand of these properties on the market, the newly constructed condominiums are being upgraded with every feature and amenity, suited to provide the residents with a comfortable living experience. With the small comfortable units fully equipped with all vital needs, condos are fast becoming the preferred living unit which is both affordable and an easy way to enjoy the freedom of a place of your own.     

But while initially when you settle down into a condo your life might be a breeze, sooner or later you might find the need to consult the authorities for some much needed repair and maintenance work, or simply to book for any new amenity that the board has introduced for the benefit of its condo residents. 

In order to reach the concerned and responsible authorities, it is imperative to have a means of communication which is both efficient and warrants easy access to the liable authorities. An efficient condo communication portal proves to be the answer to the woes of all condo residents who seek a system which would connect them to the board members to share their concerns. 

The task of booking condo amenities becomes as easy as anything for residents, with a communication portal which offers the comfort of easy connection, with no associated hassle. Usualy communication portals are used to reach out to the board members with any condo related issues, suggestions and feedback. But the most efficient of portals also offer additional features which serve to make the lives of condo residents easier. With a portal system which offers the convenience to  book the required amenities from the comfort of your newly moved in condo, residents like you are spared the worry and hassle of trying in vain to get in touch with the concerned authorities for a lengthy period of time. 

Efficient portal systems ensure a prompt communication of the required amenities to the responsible authorities, with no need to for you to wait for weeks or months on end, to avail the basic amenities that you require. 

With a competent communication portal tool, condo living is made easy and comfortable. 

 

 

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Monday, October 13 2014

Four Questions You Must Have Answers to Before You Decide to Sell Your Condo

If you wish to sell your condo townhouse or condo apartment then you need to know that selling this type of property is different as compared to selling a house. Selling a condo requires a rather complex process. This is mostly due to the fact that no two complexes featuring condos are the same. Plus, the chances for litigation are higher. As such, before deciding to sell your condo or hiring an real esatate sales agent to help you out in the process, you need to have the answers of the following four questions:

1. Does the real estate agent you are consulting actually have sufficient experience in selling condos?

Most inexperienced or aspiring real estate agents are likely to list freehold homes in the listings as condominiums. This is mostly due to the fact that they fail to understand the difference between ownership of freehold common elements and ownership of condominiums. Moreover, some agents even list condos while having no clue of the condo association’s embroilment in costly litigation with the authorities that carried out the building process (i.e. the builder). Therefore, before listing your condo townhouse or apartment for sale through a realtor, you should make sure that the person has sufficient experience in selling condos.

2. Are there any pending increases or special assessments in your condo?

Is the association that looks after your complex in the middle of levying your unit for a special assessment, or has it already happened? You need to disclose this information to all prospective buyers. Apart from that, another thing that the buyers should know is that whether or not the condo board is about to increase the condo’s fee.

3. Are there any restrictions on occupancy that prospective buyers should know of?

Does your condo complex allow pets? Is it possible for a prospective buyer of your condo to rent it? Is it possible for the buyer to operate their business from inside the unit? If there are any restrictions like these or similar, you should tell all potential buyers about them first hand. You can find this information in your condo by-laws and policies.

4. Which category does your condo exactly fall into?

Do you know which category your condo exactly belongs to? There are several regions in which townhouse complexes have variation from the standard complexes. Some of these have condo corporations responsible for the maintenance of exterior doors, windows, roofs, etc. On the other hand, others leave all of these and similar responsibilities to the owners of the units. There can even be a few complexes that require both the condo boards and the unit owners to cooperate during the maintenance processes. If you are listing your condo for sale then you need to add all of this information along with it.

Simply put, in case you decide to sell your condominium townhouse or apartment, you need to know exactly what you are doing. If you can’t seem to have sufficient information, it is always the best option to consult a professional agent.

 
Wednesday, October 08 2014