Condo Association Reserve Fund Guidelines

[undergroundPOP]

My supervisor and I are appraising an office condominium unit, and after reviewing the internal balance sheets, our gut feeling is that the reserve funds of the property owner's association are low. There was some visible water damage around the roof and stucco, which probably needs replacement within the next three or so years... so having $13,000 on hand for a new roof on a 13,000-sf building seems inadequate and owners may be subject to special assessments

I'm looking for some supportive data in regards to reserve fund guidelines (i.e. reserves should be 3% of overall building value, etc). Anyone know where I can find such data or information?

 

[Deleted member 130081]

Regulated on the state level around here and while the new rule does not state an amount the reserve fund ought to be, associations are now required to set aside a minimum 10% of dues and get a reserve study done on a regular basis. IMO, the analysis you are making is a very complex one, usually best left to a reserve fund study. I don't do commercial, but for res condos I just state if the budget appears typical or not and then make a statement that a reserve study is the only way to competently form an opinion of the adequacy of reserves.

 

[undergroundPOP]

Regulated on the state level around here and while the new rule does not state an amount the reserve fund ought to be, associations are now required to set aside a minimum 10% of dues and get a reserve study done on a regular basis. IMO, the analysis you are making is a very complex one, usually best left to a reserve fund study. I don't do commercial, but for res condos I just state if the budget appears typical or not and then make a statement that a reserve study is the only way to competently form an opinion of the adequacy of reserves.

In California, I believe there's a state mandate for residential condominiums, but none for commercial real estate. We'll most likely go that route of disclosing and leaving it up to the reserve study professionals.

 

[Deleted member 130081]

In California, I believe there's a state mandate for residential condominiums, but none for commercial real estate. We'll most likely go that route of disclosing and leaving it up to the reserve study professionals.

On second thought, even without seeing the building, or being a commercial appraiser familiar with the cost of commercial buildings, $13,000 seems pretty low. I suppose you don't need a reserve study to come to that conclusion, but that wasn't your question, so...

 

[Howard Klahr]

I'm looking for some supportive data in regards to reserve fund guidelines

There is no guideline per se. It depends on the short lived components, their effective age and replacement cost. If not you, your supervisor should be familiar with the breakdown method of depreciation.You should

 

[glenn walker]

Declare you are a CPA ! Or include in your report that you had all documents- books- bank -accounts and that you are also wearing two hats- Appraiser and CPA and you have reviewed and analyzed the budget -Then forward your number so I can have one of the California Law Firms defend you- Never fall into this trap LOL

 

[undergroundPOP]

Declare you are a CPA ! Or include in your report that you had all documents- books- bank -accounts and that you are also wearing two hats- Appraiser and CPA and you have reviewed and analyzed the budget -Then forward your number so I can have one of the California Law Firms defend you- Never fall into this trap LOL

Why don't I just go the extra mile and declare that I conducted a formal reserve study and say that everything looks peachy? No risk involved and give it an NOI of $5,000,000,000,000,000 at a 20% cap...

 

[Howard Klahr]

include in your report that you had all documents- books- bank -accounts

What does any of this have to do with evaluating appropriate reserve allowances?

even without seeing the building, or being a commercial appraiser familiar with the cost of commercial buildings, $13,000 seems pretty low.

Based on what? You have absolutely no idea where in the reported balance of the reserve account is in the time horizon.

 

[undergroundPOP]

What does any of this have to do with evaluating appropriate reserve allowances?


Based on what? You have absolutely no idea where in the reported balance of the reserve account is in the time horizon.

I think he was being sarcastic...