Defects Reserve Calculator

Latent construction defects emerge months after completion.

Building value

Defect reserve %

Building age years

Reported defects count

Avg repair cost

Reserve amount

$375,000

Pending claim cost

$280,000

Reserve adequacy %

1.34%

How the math works

Reserve = value × % × age factor. Pending = defects × avg cost.

$25M × 1.5% × 1.0 (age 2) = $375k reserve vs 8 × $35k = $280k pending = 134% adequate.

How to Use

Enter building value.
Enter defect reserve % assumption.
Enter building age years.
Enter current defect reports.
Read reserve analysis.

Frequently Asked Questions

Common defect types?

Water intrusion (most common). HVAC performance. Structural settlement. Stucco/cladding cracks. Roofing leaks. Plumbing leaks. Electrical grounding. Each carries unique liability and repair profile.

Reserve sizing?

Year 1-3: 1-3% of building value. Year 3-10: 0.5-1%. Year 10+: 0.25-0.5%. Latent defects peak 2-5 years post-occupancy. Decreasing reserve timeline after 10 years typical.

Claim windows?

Statutes of repose: 6-15 years state-specific. Claim must be filed within window or forever barred. Warranty contracts: 1-10 years depending on component. Keep detailed construction records through statute of repose.

How often should I rerun this?

Rerun this calculator whenever inputs change materially — new rent roll data, rate moves, loan balance updates, or quarterly operating data. For active deals, monthly refresh is typical. For stabilized assets under monitoring, quarterly is fine. Treat the output as a decision tool, not a one-time answer — market conditions evolve and so should your analysis.