Financial Disclosures: A Business Model for Consumer Protection
100% Funded - IDEAL
60 (or 70%) to 99% Funded
30 to 60% Funded
0 to 30% Funded
Association reserves are often underfunded, yet the value of the property is directly tied to the value of the reserves.
Many Associations do not have a Reserve Study and have no financial road map for their future. Jacquie explains her view of the relative risk levels to buyers, especially in terms of possible looming special assessments and fee increases.
Private Sector Innovations
Name of firm: HOA Document Review, Inc. Year Founded: 1998 Headquarters: San Jose, California (Silicon Valley) Service Areas: Throughout the state of California Web site:www.HOAdocumentReview.com
You've heard of a traditional physical home inspection before buying a home.
This business concept operates on much the same principle as a physical home inspection, except this firm has experience sorting through sometimes complex financial documents to report to their customer the current difference between the recommended reserve amount and the actual amount that the Association has in its reserve.
That 'deficit-per-unit' amount, which could eventually mean a large special assessment for each owner, can be negotiated off the sale price of the unit.
VIDEO - Reserve Studies, as state law, are a useful consumer protection measure
If you only remember two words from this book and web site, remember the words Reserve Study. The short definition of Reserve Study, is that it is a professional engineering/accounting document that is the financial road map for the future of the Association.
As of the printing of this book, only a small number of states require a Reserve Study: California, Hawaii, Nevada, Virginia and Washington state. (And even then, there are no 'condo cops' to enforce this law, so some associations -- especially smaller associations -- still have no Reserve Study.)
Some states have laws with vague wording that says in effect, "maintain adequate reserves", but how can you translate that phrase into a plan of action without the hard data in a professional Reserve Study?
Ironically, state laws rarely require that the reserves be funded. Usually, the legislatures give the owners the option of not funding the reserves, which is all the more reason that a potential new buyer at an Association should check the needed reserves versus reserves on hand, before buying.
The Community Association Institutes (CAI) chapter for Pennsylvania and Delaware Valley created an annual recognition program in 2000 for well-managed local Associations, according to Tony Campisi, Chapter Executive Director.
To apply, Associations fill out a detailed four-page check list that details the financial and adminitrative planning of the Association and submit a fee of from $75 to $150 depending on the size of the Association. (Associations do not have to be members of CAI to apply for the recognition status.)
The applications are reviewed by a local, independent review panel consisting of an attorney, insurance specialist, an Association volunteer.