5 Steps to the Best Reserve Study Firm
Download our guide, Building to Last: Mastering Capital Improvements.
Nothing lasts forever…and you need to have a plan to replace major items and systems before their useful lifespans end. How do you create that plan? Start with a quality reserve study.
What is included in a reserve study?
A reserve study is a report about the condition and likely useful life of all the major components in your building or community. In a high-rise, major components include things like the roof, plumbing, waterproofing, and exterior painting, garage gates and access systems, HVAC components, elevators, trash compactors and boilers; in a homeowners association (HOA), they might include the gate system and pool pumps.
IMPORTANT: Beginning January 1, 2024, Tennessee law will require condo association boards to have a reserve study done on or before January 1, 2024, if the board has not had a reserve study conducted on or after January 1, 2023. The law will also require boards to have an updated reserve study done within five years of the original reserve study date and every five years thereafter. The legislation further outlines that if an association has performed a study after January 1, 2020, it will count as the first and start the five-year clock. To learn more, read our article, and reach out to your association’s counsel.
Your management company can help you find qualified and licensed reserve study firms that can help meet this requirement.
The reserve study also contains a recommended schedule for repairs and replacements (i.e., capital improvements) that will be needed over the next 30 years, estimated costs for these projects and a recommended funding plan. All of this information allows your board to set aside money year over year so you can pay for the work when the time comes. (To learn more about capital improvements and the role of reserve studies, download our guide to mastering capital improvements.)
How do you get a reserve study completed?
You’ll need to hire a specialized reserve study firm; they will be knowledgeable when it comes to conducting reserve studies for properties and often have engineering expertise. Your property management partner can recommend the most experienced and reputable firms for the board’s consideration. Once the board selects one, a reserve fund specialist from the firm will tour your community or building with your property manager, documenting major systems and their ages and conditions. Your property manager should know exactly what questions and property details need to be mentioned on behalf of the board. After this tour, the reserve specialist will create a report that details when repairs or replacement will be needed, how much these will cost at repair or replacement time, and what you’ll need to do to make sure you’ve got the money available at that time. Finding the right reserve study firm is crucial to your association’s financial health; if the firm’s projections are off, you might need to levy a special assessment or take out a loan to cover an unexpected project.
What should you look for when selecting a reserve study firm?
First, make sure you align with the reserve study firm when it comes to your financials. The way they view your financials should line up with how your association manages financials. If they look at your financials differently than you now, that may lead to significant challenges later.
How do you make sure the reserve study firm understands your financials? Maureen Connolly, client accounting business partner, said, “Provide the firm with your current study and your full reserve cash balance to ensure that they have accurate numbers from the beginning. Giving them this information at the beginning of the process will ensure you're on the same page.”
In addition to keeping financial reporting in mind, when looking for a reserve study firm, follow these five steps:
1. Paint a picture of your association.
Any reserve study firm is going to need basic information about your building or community: age, type, square footage, number of units, amenities, maintenance records, age of all mechanical components and any repairs or replacements you’ve already made. Letting the firm know what repairs have been done is especially important – what was done, when, and what it cost so that they can account for it in reserves. This process also helps ensure that the firm’s estimates are reasonable – not overestimated or underestimated. For example, if you recently paid $50,000 to paint your building, but the study assesses that it will cost $400,000 the next time, you may need to inquire as to why that’s the case.
“Your community or building should have a subject matter expert who can answer detailed questions,” Connolly suggests. “It may be your manager, a veteran board member, or someone who has served on the board before.” Connolly also added that if the reserve firm doesn’t ask these types of questions, they shouldn’t be entrusted to conduct your reserve study.
2. Identify possible firms.
Like any association vendor, you should work with your management company to vet potential candidates, Connolly said, “Start with 3 or 4 firms that seem like a good fit for your association. You can find a potential reserve study specialist by contacting engineering firms that have previously worked on your property.”
Ask your property management team for recommendations. A quality management partner will have the contacts you need and the buying power to help your board get the best value for your money. A large management company will also be able to tap into its network and get opinions from other boards about their experiences before you ever talk to a single reserve study firm.
Because of new structural integrity study requirements for certain buildings, some associations may need to hire a reserve study specialist that is a licensed engineer as well. If your property needs a structural integrity study, work closely with your association counsel, reserve firm and accountant to ensure that you properly meet this requirement.
3. Know what questions to ask.
Be prepared to interview the reserve study firm representatives by having a list of questions ready to go. Standard information you’ll get from the firms may answer a lot of these questions. Once you know what you want to ask, set up your interview. Of course, you know to get the basics you’d ask of any vendor. Beyond that, there are a few additional questions you’ll want answered.
- What time commitment does the firm expect from your association? Another red flag to look out for? When the firm wants to work on your reserve study alone, without your board’s input,” said Connolly. “The process of putting together a reserve study involves a lot of collaboration. – it requires input from both your board and management company.”
- How much time will the firm spend on the site inspection? You need to know how long you can expect the reserve specialist to be onsite and how many times they will come back to check information.
- When will you be able to complete the reserve study? Because of new requirements (like the study for structural integrity), many reserve firms are backlogged. It’s important to understand their timeline and yours, so that you are able to complete the necessary steps to remain in compliance.
- What’s included in the reserve study price? It’s important to find out how many revisions the firm will make to the study before adding fees. Be clear on price and what actions will incur extra costs.
- What will the study look like? Get sample copies of the firm’s reports. Different associations prefer different formats, and you should be comfortable with theirs. "Some firms don't include a reserve study review meeting in their pricing structure. Ensure you have one so you can sit down with the reserve specialist to ask questions about the final report.”
4. Check their references.
Once you’ve met the firms you feel might be right for your community, the next step is to check their references. Talk to at least 3 other communities for each firm you’re considering. Don’t be shy about getting in touch with other properties they’ve worked with to get their opinions about the quality, price and speed of the work. How many other firms did the board consider? Why did they make this final choice? Did they wish the firm had done something differently? What did the firm excel at?
Ask about building, property inspections and financial challenges. For instance, Connolly said to ask previous clients if the firm stuck to their original price or added on unexpected fees. “It’s important to know how the firm handled issues and challenges when they arose.” She added, “When challenges arise, a reserve study firm must be proactive and calm under pressure.”
5. Compare and contrast.
Spreadsheet lovers will take this one on happily. Create a matrix with everything you want on the columns and what the firms offer on the rows. Who comes in at or under your budget? Who will get the job done on your timeline (or sooner)? Which firm expects the same amount of board and management involvement that you want to provide? Once you have your matrix completed, it becomes a simple chart of pros and cons. Any firm that doesn’t meet your criteria gets dropped and the others are contenders. You have all the tools to make the call on which firm is the best for your community.
After your reserve study is finished, you should feel confident about financial planning for your community. A thorough study will help you set up your maintenance plan, save for repairs and replacements when needed and help keep your community or building financially healthy for years to come.