The Drama of the Underfunded Association – How did we get here?

In CAM Library, Condo Association, Construction, Construction Cost Estimating, Home Owner Association (HOA), Reserve Studies by Patricia Staebler

About 60% of our work portfolio of reserve studies turns out to be underfunded, about 50% of that is severely underfunded with an average funding of 15% and less. One of our least favorite duties is to explain the community members how they got to that sad point.

After the truth sinks in, the first question is usually: Whose fault is it? Well, certainly not the current board or the just recently hired new property manager. In severely underfunded associations the culprit is usually a succession of wrong decisions, lack of knowledge, and foremost unwillingness to face higher monthly assessments.

Not only that past boards continuously voted to not increase the contributions to the reserves, but in most cases the maintenance schedules for major building components was extended.

For example, we see more than once that exterior painting was extended from a 7-year schedule to an “8-year and beyond schedule”. Paint is the first protection barrier against water intrusion. If not maintained properly this first barrier will fail and let water enter to penetrate the stucco. And this is just the beginning of more major problems to come.

After failing paint comes failing stucco

We see this deferred replacement of major building components on exterior paint, roofs, roadways, parking lots, etc. Neglected building components threaten the integrity of the building and are usually last on the list of deferring repair and replacement. High up on the list are roadways, sport surfaces, fences, walls and landscape. While these assets are not vital for the health of the buildings, they are vital to the wellbeing of the community. An association which does not have well maintained landscape, roads and common elements will experience difficulties with moving property. Sellers will stay away and owners who want to sell are stuck in a community no longer desirable for them to live in. This is usually the beginning of the end.

 

Reserves shrink – Property Values decrease

Catching up with deferred maintenance and replacement is a difficult task and not only requires a willing board and a knowledgeable property manager but a well researched and executed reserve study.

Besides the tools we have to improve the financial situation of an association step by step, the newly established replacement schedule should be followed every year. With diligence and hard work it is possible to turn an association around.

For questions how we can help your association, email us at info@ce2.616.myftpupload.com

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