Potential liability for home owner "do-it-yourselfers" regarding Reserve Studies and other professional services at your association
1. Real Estate Professionals and Community Managers will tell you, correctly, that each property is unique, just like a human fingerprint or a snowflake.
2. The adequate reserve fund amount and adequate monthly maintenance fee for a property will vary from property to property, based on factors such as:
- Year the property was built
- Quality of original construction
- Maintenance level since construction
- Number of units in the association
- Local climate conditions
- And other factors
- Type of property (for example, a condominium usually has more shared infrastructure and expense than a detached single-family home within a Home Owner Association, but all types will need reserves)
- Maintenance responsibilities of the Association as defined by governing documents or state law
3. Therefore, there is no "standard percentage" for how much to charge each month, or how much to reserve.
4. The best mechanical and financially sound way to know how much your association needs to charge each month, and how much to reserve, is for your association to hire an accredited professional Reserve Study firm, which performs services in your area. A professional Reserve Study most often is performed by a cross-disciplinary team of accredited professionals in both engineering and finance. A professional reserve study is required by law in some states. In California, the Reserve Study must now be reviewed and updated annually, as property conditions continually evolve.
5. While there is apathy among some home owners about providing voluntary assistance to their own association, other well-meaning home owners are eager to voluntarily perform professional services, for which those volunteer home owners may or may not be trained or qualified.
6. Home owner volunteers are placing themselves at considerable liability risk, especially if their complex technical and mechanical evaluation or the financial analysis and modeling in their Reserve Study proves to be incorrect or is not updated in a timely way.
7. Therefore, do not use the custom example reserve studies shown in this publication, as a basis for your own monthly fees or reserve fund needs. The purpose of these custom-created samples is to give you a simplified, sample Reserve Study, in order to educate yourself and your neighbor co-owners about what a Reserve Study is, and why a Reserve Study is an important element for the long-term financial soundness of your community association.
8. If you do not agree with the statements above, you may return this book to the publisher for a full refund.
9. Also, based on laws in some states, there is a legal concept known as the "Business Judgment Rule," which helps to shield the volunteer board of directors from liability, barring any other board malfeasance. One aspect of the Business Judgment Rule is that for controversial decisions, such as levying special assessments, the board relies on the advice and counsel of paid, outside, third-party professionals, such as licensed or accredited Engineers, Accountants, Attorneys, Community Managers and Reserve Specialists.