5 Steps to the Best Reserve Study Firm

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.

You may know that 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 garage gates and access systems, elevators, trash compactors and boilers; in a homeowners association (HOA), they might include the gate system, pool pumps and clubhouse HVAC system. The report also contains a recommended schedule for repairs and replacements (“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 reserve studies and their relationship to capital improvements, download our guide!)
 
But how do you get a reserve study to begin with? Reserve studies are carried out by specialized firms, often with engineering expertise. A reserve fund specialist from the firm will tour the property with members of your board and your property manager, documenting major systems and their ages and conditions. Then they will generate a report that details when repairs or replacement will be needed, how much these will cost 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 find yourself having to levy a special assessment or take out a loan to cover an unexpected project.  
 
“A lot of the issues I've seen communities have with reserve studies are disparities about how the firm looks at the financials versus how the board is looking at them,” explains Robert Kirby, regional engineer at FirstService Residential. “Their view of your financials and YOUR view of your financials have got to mesh.”
 
Rebecca Clemson-Petrik, a regional director at FirstService Residential, agrees. She has helped many communities find reserve study firms and worked with them while the study was conducted. “As far as the financials, make sure you provide the firm with the correct numbers at the start so that your study is as valuable as it can be," she says. “You should use the total reserve cash balance, so the firm’s report begins with an accurate cash value and you can work from there.”
 
In addition to keeping financial reporting in mind, when looking for a reserve study firm, follow these 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 replacements you’ve already made.
    
   “Be prepared to answer questions about every part of the place,” Kirby suggests. “If you can find a subject matter expert on your community or building, that’s ideal. It may be your manager; it may be a long-time board member or one who served in the past.” Kirby also says to disqualify any firm that doesn’t ask you these questions.
2. Identify possible firms. Kirby recently helped a community find a reserve study firm. “You need to start with 3 or 4 firms that seem like they’ll fit your needs. If an engineering firm has done any kind of work on your property before, start there,” he recommends.
    
   Ask your property management team for recommendations. A quality company will have both 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.
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 board? “You have to put in the time to walk through the community with the reserve study firm. If a firm rejects that collaboration when you ask how much time they want from you and says they’ll do it alone, it’s not the right firm,” Kirby says.
   • 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.
   • 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. “Make sure that you are clear on price and what actions will incur extra costs,” Kirby cautions.
   • What will the study look like? Get sample copies of the firm’s reports. Kirby points out that “different communities prefer different formats, and you need to be comfortable with theirs.” According to Clemson-Petrik, “A lot of firms don’t include a meeting to review the reserve study with the board in their pricing structure. Make sure you include that so you have the opportunity to sit down with the reserve fund specialist to ask questions about the final report.” In addition, some states have laws requiring reserve studies; check with your association attorney and accountant to make sure that the firm's sample reports meet state criteria.
4. Check their references. Once you’ve met the firms and you feel like they 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?  
    
   Kirby recommends that boards ask what the challenges were with the firm, both on the building or property inspection side and the financial side. Did they stick to their price or add on some unexpected fees? How did the firm handle issues when they arose? “The problem isn’t the problem,” he says. “Their response is the problem.”
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.