Skip to Content

Your Condo's Future

Planning for the Expected - and the Unexpected

Article written by Jack Carr, P.E., R.S., LEED AP, Criterium Engineers
Published in Condo Media, July 2012

I have been meeting with a different condominium board or homeowners association's facilities committee at least once a week. They are all different. Someone suggested when I retire I should write a book and call it "All Condos - Great and Small." With all of the differences they have, they all have one service need in common:  It's all about protecting the unit owner's net worth and quality of life.
Property managers have always known this. They know they are in the people business. They also know, in dealing with groups of people consensus can be a challenge. This is also a lesson most board members have experienced. The long-term solution to this challenge is
simple:  Condos need a plan.
In managing the operations of a condominium, a long-term business plan solves the primary problems of the condo world, namely perceived fairness to all owners; consistency in the periodic transition of management; and the association's fiscal responsibility. Whereas the day-to-day operational issues are managed by procedures and administrative rules, the long-term capital repair needs require a comprehensive plan to cover the expected and unexpected.

Reasons for a Plan

The issue of fairness is interesting. It goes to the heart of community living and the recognition that not all people are equal from the point of view of wealth, health or tolerance of deferred maintenance. Yet the capital spending decisions have to be made on a fair and rational basis. We have all heard the discussions at general association or board meetings of owners trying to stall or stop the spending of funds required for needed improvements.
I recall one such discussion concerning siding replacement when one senior owner stood up at a meeting and asked for the project to be delayed a few years. As she put it, she did not even buy green bananas, as she wasn't sure she would be around long enough to enjoy them. 
Another discussion revolved around the need to replace deteriorating roofs. An owner said he was retiring to Florida in a year, so why should he endure a jump in his assessments to fund new roofs he will never enjoy! In response, I suggested that of all the owners in the community, he needed this roofing project to be approved as soon as possible. I explained if he's planning to sell his unit, he needs a reroofing plan in place to avoid his asking price being heavily discounted due to the poor condition of the roofs. His relatively small assessment increase could have a dramatic effect on his ability to sell the unit at the price he needs for his retirement plans.
The second reason for having a long term plan is the changing of the board's membership or property managers. The plan provides a bridge from one administration to the next.
The third reason is fiscal responsibility of the board members, in particular, and the association, in general. The real estate downturn has resulted in more stringent local and federal rules of condo governance and loan eligibility related to current capital needs plans and levels of reserve funds. The real estate industry is no longer treating the marketing of condominiums as if they were selling apartments. Realtors are reminded they are not only selling the space between the walls, but also an entire community with its fiscal and maintenance baggage. This has broadened disclosure requirements.

Involving Professionals

In parallel with this is the emphasis of recognizing the importance of the property management field and treating it as a profession with its own standard practices and ethical codes. Community Association Institute (CAI) has seen a growth in demand for its formal Professional
Management Development Program (PMDP), including its M-IOO and M200 series courses for earning the ascending certification and designations, including Certified Manager of Community Associations (CMCA), Association Management Specialist (AMS) and Professional Community Association Manager (PCAM).
With this rise in professionalism, condo boards demand a higher level of competence in their association's reserve fund plans. This has given rise to CAI's reserve fund specialist (RS) designation to recognize those engineers who meet a rigorous standard of reserve fund experience, technical education, and comply with a specific code of ethics.
The good news is it has become easier to find qualified managers and reserve fund study firms. The standards for a suitable reserve fund study have been well-established. Developing a scope of services for a Request for Proposal (RFP) is available from CAI's standards guide.
All reserve fund studies should include: Component Inventory, Condition Assessment, Life and Valuation Estimates, Fund Status and a
Funding Plan.
Studies can be characterized as a full study or an update of a previous study. A full study will always require site visit(s) to make visual observations of the physical condition of all of the common asset components. An update study typically requires on-site visit(s) but could be limited to simply adjusting the funding status and plan based on specific changed circumstances. Typically, these studies forecast from 20 to 30 years into the future. Updates are typically conducted every five years. 
Basic reserve fund studies view the component list as a target for "like-kind" replacement in terms of recommendations and costs. A popular option considered by many boards is an enhanced reserve fund study. Instead of replacing components with similar components, consideration is given to replacing the component with more efficient components or systems, taking into consideration life cycle costs, energy savings and other improvements. This takes advantage ofhaving an engineer conducting the study who can assist the board's desire to modernize
their complex.
Sending the RFP to two or three firms will provide a range to choose from. As with hiring any professional service firm, the level of competence and fee structure should not be the entire basis of selection. This firm will be representing the board in its dealings with the association. A solid relationship of trust and confidence is key to a successful reserve fund study. Through effective communication,
confidence can be developed between the parties involved. As a result, the recommendations of a reserve fund study can be effectively implemented.

RFP Language

To determine if a firm will work well with your board, the RFP should require an interview with the project manager that will drive the project to learn about the firm's approach and ability to communicate. The following RFP language could be used to meet these objectives: 

The board will select two to three consultants it believes to be qualified for the work and then conduct interviews. The objective of the interview is to meet the people who will be specifically working on our project, discuss a variety of questions and generally understand the procedures the consultant intends to use for the project. A final choice will be made within one week following the interviews.

The RFP should also indicate the requirement for a pre-project meeting. The board should meet with the consultant before work starts. The objective is to refine and finalize the scope of the project. This is also an opportunity to determine what will be expected of the association (or management company) and what will be expected of the consultant throughout the project. Suggested language for the RFP:
The first step after selection is a meeting with the board (building subcommittee) to review, refine and finalize the scope of this project. At that time, the items to be covered, the procedures involved, the on-site protocol to be used by the consultant and any special concerns of the board (building subcommittee) will be discussed.
The RFP should also require the consultant conduct an owner's survey to give owners the opportunity to express any concerns they might have
about the project. While this may seem risky) it has been my experience that it is actually quite effective. Such a survey would be accompanied by a letter from the association, providing owners witb the scope of limitations of the reserve study to be conducted and encouraging them to respond. It has been my experience that there will be a high percentage of responses. Often the response to these surveys reveals patterns that relate to association responsibilities as well as giving owners the opportunity to note concerns. Suggested RFP language is:
The consultant is expected to distribute a survey for use by all unit owners and compile the results ofthat survey as a part of the reserve fund study.
Continuing on the theme of good communications, I recommend all reserve studies have a follow-up meeting. It is important the consultant be
willing to discuss the findings of the study with the board and/or unit owners. This is especially important if the study includes an evaluation of
upgrades and improvements. There should have been ongoing discussions with the board and/or property manager. A meeting with the unit owners is a logical extension of that process. Suggested RFP language is:
The consultant is expected to attend at least one meeting to which all ofthe unit owners have been invited. This will occur after submittal and acceptance of the final report. The consultant will be expected to provide an overview oftheir findings and respond to questions from the unit owners.
Our discussion has focused on the long-term capital repair items. This plan is also dependent on the short term annual maintenance plan. If the
short-term plan is not followed, it can result in a significant loss of useful life for the reserve components. This will result in their replacement occurring sooner than anticipated when adequate funds have not yet been accumulated.
A reserve fund study is a good budgeting tool. But it must be used properly. Fundamental to this objective are two basic premises:  communication and relationships. Communication is multifaceted - between the board and owners; between the board and the
consultant; and between the consultant and the owners. To ignore these opportunities for effective communication will result in diluting the effectiveness and ultimate success of the implementation of any reserve study.