As reserve study providers we are often asked why are reserve studies so expensive? Many associations; particularly those which have never had a reserve study done by a professional level service provider; are surprised at the cost of a new level 1 study.

With the recent change in Washington state law (SB 6215) now requiring all associations to obtain a level 1 reserve study from a professional provider, this question is sure to be asked over and over in the coming months. Our response to, “are reserve studies really that expensive?”

Taken in the context of an average homeowner’s association let’s evaluate how the cost of a typical level 1 reserve study impacts the individual unit owner.

Suppose you are living in a typical 50 unit condominium association in the greater Seattle area. The association to which you belong is now required to obtain a professionally prepared reserve study as a result of SB 6215; either because they have never had a reserve study prepared before, or it has been at least three years since the last study was updated by a reserve study professional.

In addition to the cost of a new level 1 study, your association is also required to prepare a level 2 study every three years. This three year lifecycle, now being a statutory requirement; can therefore serve as a benchmark for the lifespan of a reserve study.

Since it has been at least three years since your association has performed a level 1 reserve study, the decision is made to obtain a property condition assessment from a qualified professional architect or engineer, to use as the basis for the new level 1 reserve study. This assessment will be based on the visual assessment of all common area components by the consulting architect; with their opinion as to the remaining useful life of all components forming the basis for the replacement reserve schedule.

Assuming there is nothing out of the ordinary, the association can expect the property condition assessment to roughly double the cost of the reserve study project; however the result will be the most comprehensive, reliable and accurate study which can be done; thereby creating a solid foundation from which your association can build a sound long range funding plan for the maintenance, repair and replacement of common area components.

After obtaining proposals from various reserve study professionals and discarding those which are so inexpensive it is obvious a meaningful analysis cannot be performed for the price quoted; the board of directors accepts a proposal from a well qualified provider who will prepare the study in conjunction with an independent architectural consultant hired to perform a property condition assessment.

The cost of the entire project is established at $10,000.00; approximately $5,000 for the reserve study and $5,000 for the condition assessment. Let’s look at how this $10,000.00 cost breaks down on a per owner basis; and see what the cost per day is assuming a three year amortization of the total expenditure.

First of all $10,000 divided by 50 unit owners is $200 each!

The total cost of the reserve study, including a property condition assessment prepared by a professional architect or engineer is therefore $200 per unit owner; hardly an amount likely to break the bank.

Secondly, this amounts to less than $67 per year over the three year life of the reserve study.

And last but not least; $67 per year amounts to less than 19 cents per day, per unit owner.

Given the level 2 reserve study which must be prepared after three years will typically cost less than the original level 1 study; the continued cost to maintain the reserve study and update the condition assessment will decrease in the years ahead.

To put it another way; assuming your condominium has a market value of $250,000; the annual cost for your share of the reserve study and condition assessment amounts to .00027% of the value of your investment for the most important financial planning tool available to your association.

Now that the law in Washington has eliminated the element of choice when it comes to whether a homeowner’s association obtains a reserve study or not; the goal of every well managed association should be to obtain the best reserve study available for the money they spend. Perhaps a good way to begin the search for a qualified reserve study provider is to consider what kind of companies or individuals you should not consider for the role of reserve study providers for your association.

In anticipation of a surge in demand, as a result of the new law; associations should expect an increase in the number of firms who are suddenly in the reserve study business and are sure to come calling offering low prices, quick turn around times and very little in the way of experience or substance.

Firms who discourage you from considering an independent architectural consultant as the most appropriate professional to prepare a property condition assessment should be viewed as highly suspect. Companies who were not in the reserve study business prior to the enactment of the new law should be viewed as nothing more than opportunists who are obviously most interested in the money making possibilities presented by the new statute, rather than the professional integrity of their work.

Associations should be cautious of individuals or firms who are not specifically in the business of preparing reserve studies, but offer many services with reserve studies being yet another area in which they are “specialists”.

Any individual who claims to be an experienced reserve study practitioner should possess the Reserve Specialist certification (RS) from the Community Associations Institute (CAI). CAI is the oldest industry organization in the country and has established a recognizable and credible certification process for reserve study professionals.

Specific related work experience and a minimum amount of experience supervising the preparation of reserve studies is required before an individual may obtain the RS designation.

Community managers, banks, appraisers, insurance companies, real estate agents, contractors looking for work, attorneys and accountants are generally not good choices as reserve study providers; either due to their lack of expertise in the building sciences or the potential for a conflict of interest between the provider and their client.

Any company or firm who already has a working relationship with the association should not be considered for the job as it is very important for the reserve professional to maintain a level of objectivity which can only come from a truly independent role as a reserve study provider. Any form of actual or potential conflict of interest can undermine the integrity of the analysis, and should be avoided in the interest of a credible reserve study.

This important distinction is also true with respect to architects or engineers who may offer to prepare the reserve study as part of a package which includes having them prepare the condition assessment; often times for a price which is substantially lower than the cost to retain two distinctly separate consultants to perform these services.

For more information about what to look for in a competent reserve study professional and a credible reserve study [Click here]