How do you know if your reserve study provider is giving you a good reserve study?  Not just a document designed to satisfy legal statutes or required by a bank to obtain financing, but one that will actually aid you in maintaining and increasing the value of your investment.

First let’s address the issue of who is actually doing your reserve study.  It should be done by someone who has the ability to integrate both the financial needs and the construction realities of your property.  If the individual doing the reserve study doesn’t have an understanding of the construction of your building(s) and the common elements involved, they are not providing a comprehensive and accurate product.   The same individual should have an understanding of the financial aspects of maintaining your building(s) and common elements over a long period of time.

Frequently reserve studies consist of nothing more than a spreadsheet listing some of the major (and obvious) common area components and dollar amounts taken from the original construction or recent renovation of the property.  Do you think this is enough information to develop a legitimate reserve funding plan? And is it the best type of information to be used in developing a reserve funding projection for the next thirty years? No? Why not? Take a look at your reserve study; is this what you have? Or can you even tell what you have by reading through your current study?

For communities of 4 units or more the reserve study should include a property condition assessment done by either an architect or engineer.  A property condition assessment should be done every 3 to 5 years. A reserve study that is based on the findings of a property condition assessment is referred to as a Level I reserve study.

Communities that are very large or are comprised of older buildings are strongly advised to complete a Level I reserve study every three years. In states such as California this requirement is mandated by state law.

The property condition assessment should be performed by an independent architectural or engineering consultant; someone who is not directly affiliated with the reserve analyst. These two disciplines should serve as a system of checks and balances and the integrity of the reserve study is enhanced when prepared by an independent reserve analyst who is not beholden to other service providers or professional consultants associated with the project. 

While there may not be an actual conflict in every case; the potential for a conflict of interest always exists when a Level I reserve study is prepared by one individual who performs the condition assessment and the reserve analysis.  The interest of the community is best served when the services are provided by independent professionals; in much the same manner as when you are referred to a specialist by your primary care physician, rather than having one service provider manage your entire health care regimen.

A reserve analyst should have experience with construction & maintenance procedures, blueprint reading, building science technologies, cost estimating, scheduling and administration of construction & repair programs; in addition to an understanding of financial analysis that is involved with the reserve planning process.

As properties age maintenance and repair requirements will begin to change and often times become more frequent, complex and costly. Lack of proper maintenance planning and budgeting will inevitably lead to deferred maintenance, due to the unavailability of funds or lack of understanding that critical maintenance procedures are needed at a certain point in time. Deferred maintenance is always exponentially more costly than preventive maintenance. Any maintenance program that results in high levels of deferred maintenance will ultimately cost the association many times what it would have cost to maintain their assets properly in the first place.

Does your association have a swimming pool, a clubhouse, large grounds, fountains or tennis courts?  Is the association responsible for maintaining the sidewalks, roads and water or sewer pipes?  Are you or the association responsible for the siding, doors, windows, garage doors and roof? All of these components and more may be found in a comprehensive reserve study depending on the how the legal documents are worded and in some cases state or local laws that govern reserve studies and reserve fund planning.

A high-rise reserve study will generally cost considerably more than a study for a suburban low-rise property comprised of one to three story wood frame buildings.  Property that includes mixed use commercial spaces frequently require two separate studies; a master study that accounts for components that are shared by all units owners and a separate study that includes only components that are used exclusively by the residential owners. The age of the property and the availability of plans, documents and historical information will also impact the amount of time and effort needed to complete the study.

People frequently ask, “How much should a reserve study cost?”  The answer is that it varies not only due to the complexity and size of the property, but with the area of the country where you live.  A good reserve study takes time and requires a high level of multi-disciplined expertise on the part of the reserve analyst. Owners should learn to view the cost of a reserve study as a capital investment that should be amortized over a three to five year period.

For example if a study, including the cost of a property condition assessment was to cost $15,000 and the association was comprised of 120 unit owners, the cost to each unit owner would be $125; when this amount is spread out over a 3 year period the cost is less than $42 per year per owner. Or looking at it another way 11 cents a day could possibly buy you a comprehensive reserve study and property condition assessment every three years. A small price to pay for sound long range planning.