Senate Bill 6215, Washington State’s recently enacted legislation requiring most condominium associations to obtain a reserve study which is based on a visual inspection of the common area components performed by a professional provider; is sure to raise debate about what exactly constitutes a reserve study “professional”.

The new law states; “…The initial reserve study must be based upon a visual site inspection conducted by a reserve study professional”; and then goes on to define areserve study professional as, “…an independent person suitably qualified by knowledge, skill, experience, training, or education to prepare a reserve study in accordance with sections 1 and 2 of this act”.

While not the most succinct definition possible at least the authors of the statute have attempted to establish some sort of acceptable standard for the term “reserve study
Professional.”

As a service to the many readers and condominium owners who are now faced with choosing a suitable professional to prepare their reserve study, HOA Services Group has prepared this article to help clarify people’s understanding of the reserve study process and who should be considered a “…suitably qualified” person; with respect to the preparation of a reserve study.

In the old days a reserve study would have typically been prepared by an accountant or possibly the community management company responsible for the management of the association. The occasional reserve study specialist may have existed in major metropolitan areas, but in general the demand for this esoteric document was often not adequate to support an industry (even a small one) of independent professional reserve study providers, who specialized in doing nothing but reserve studies.

Fast forward to the modern era of home ownership; in particular the large number of people purchasing homes in condominium associations or other types of common interest developments.

Due to the rapidly increasing cost of building maintenance and repairs; the increased number of older associations with aging facilities and perhaps most importantly the recent phenomena of older apartment buildings being converted to condominiums; reserve studies have become a much more mainstream document and one of the most important management tools available to a homeowner’s association.

With several states now requiring reserve studies for most homeowner’s associations within their borders, the demand is steadily increasing for well qualified providers to prepare and maintain reserve studies for these associations. Unfortunately, due to the many years in which there was little oversight and minimal professional training available for reserve specialists; the industry has lacked any cohesive effort in the area of training and certification of reserve professionals.

The Community Associations Institute (CAI) was the first organization to offer any type of credentialing for reserve study professionals and their Reserve Specialist designation (RS) remains the standard for professional accreditation to this day. In spite of the efforts of CAI and others, there still remains a wide disparity in the expertise of various reserve professionals and the studies which they produce.

Who Should Prepare Your Reserve Study?

What should a board of directors look for in a reserve study provider?

Is the length of time in business a reliable gauge of the quality of work produced by a particular provider?

Does the provider’s professional background have a bearing on whether they are qualified to prepare a reserve study?

Is the RS or PRA designation really a reliable indicator of the provider’s expertise?

In an attempt to answer these and other questions let’s consider what a quality reserve study provider should bring to the table in the way of experience and qualifications.

• A reserve analyst should be a detail oriented individual. Thorough, comprehensive analysis is essential to the integrity of any reserve study. Cursory review of the association’s facilities and over-simplified reports are much more likely to result in problems for the association which relies on this kind of superficial analysis. A review of several recent reserve studies prepared by the prospective candidate should establish the level of detail which is typically included in their analysis.

• A qualified reserve professional must have a solid working knowledge of current building technologies and the maintenance practices for typical common area components found in a wide variety of association facilities. This is perhaps the single most important characteristic of a competent reserve study provider. Regardless of any other qualifications an individual may possess, the need for a thorough professional background in this area cannot be overstated.

• A solid working knowledge of building cost estimating and life cycle costing for facilities is essential to the preparation of a sound reserve study. Like the old saying, “garbage in, garbage out”; a reserve study is only as credible as the information which goes into the analysis. A lackadaisical approach to cost estimating and quantity surveys is a sure fire way to get in trouble with your reserve planning process. The integrity of the information utilized by the reserve analyst is of the utmost importance in developing a credible study.

• While experience preparing reserve studies is an important factor in evaluating the credentials of a prospective provider; the quality and diversity of that professional’s work is of equal or greater importance. Experience doesn’t matter much if the studies produced during the provider’s career are routinely deficient in their content and quality of analysis. RS certification requires a minimum of thirty reserve studies to have been prepared by the applicant in the three years prior to the year the application is submitted. The quality of one’s work and range of projects is much more indicative than quantity when it comes to the importance of experience in choosing a professional reserve provider. If a prospective provider has prepared one hundred or more reserve studies in their career and they can demonstrate a credible level of competence, anything more in the way of experience or length of time in the business is probably of little importance.

• With two widely disparate organizations both offering a certification process for reserve study providers the question arises, which credential is important to see when evaluating reserve professionals? The Reserve Specialist or RS designation is the oldest and most recognized credential in the industry. CAI, the organization which grants this accreditation is the oldest community association trade group in the country and is a recognized leader in the field of education and training for community managers and condominium owners. The Professional Reserve Analyst (PRA) designation is granted by the Association of Professional Reserve Analysts, a relatively new organization when compared with CAI and while the certification process is similar in many respects; the RS designation is the recognized “industry standard” for certification of reserve professionals.

• In evaluating reserve study professionals it is also important to consider the relationship of the provider with the association. While there is no absolute rule it is the opinion of most credible reserve professionals that the reserve study provider should have no other involvement with any association for which they are preparing a reserve study, other than to prepare a reserve study or related documents such as a maintenance plan or budget. The potential for a conflict of interest exists if the provider has other business dealings with the association or with individuals who are members of the association. Community managers, real estate agents, contractors and other service providers who have an active or ongoing working relationship with the association are particularly vulnerable to the possibility of a conflict arising out of their role as a reserve provider. Objectivity and independence in the ability to formulate unbiased opinions and assumptions is a critical element in preparing a meaningful reserve funding analysis. Although there are always going to be exceptions to the rule, it is generally a good approach to avoid engaging a reserve professional who has any other working relationship with the association.

• A Level 1 reserve study is a study which is based on a visual assessment of the common area components within the association. This assessment is often performed by the reserve analyst who prepares the reserve study. In many cases this is the only methodology utilized by the reserve provider; however, there is a better approach which should be considered by any association undertaking a new reserve study project. This approach involves the engagement of an independent architectural consultant to perform the property condition assessment. This assessment is then used as the basis for the opinions and assumptions which are incorporated into the reserve funding schedule. The opinions of the consulting architect regarding the remaining useful life of components is, in most cases, a much more reliable opinion than an educated guess made by an individual with less experience and training. With the physical analysis performed by a consultant who is independent from the reserve analyst; the results of both analysis will be strengthened and the integrity of the funding recommendations will be more reliable.

To summarize, your association should seek a reserve study professional with a range of experience preparing studies for different types of properties.  An individual who produces a detail oriented analysis; possesses a strong building technology background with an emphasis on cost estimating and component life cycle analysis; has earned the Reserve Specialist certification from the Community Associations Institute and has prepared something on the order of one hundred reserve studies.

The association will generally be best served if the reserve study provider has no other involvement or business relationship with the client, other than the preparation of reserve studies or related reports such as maintenance plans and budgets.

A reserve provider who fails to at least suggest the possibility of engaging an independent architectural consultant to perform the onsite assessment of common area components; or one who insists they can produce a study of the same quality without the need for such an independent analysis; is probably not serving the best interests of your community. While it may not be appropriate or economically feasible to engage an outside consultant in every case; discussion of the matter with prospective clients is appropriate and the decision should be left to the association’s decision-makers.

Once a reserve study provider has been selected the association should plan to make time available for meeting with the reserve study team and to assist in any way possible with research and information gathering which may be requested of your reserve analyst.

The best analysis will always be the one which is derived from the most comprehensive database which can be assembled.