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A reserve fund is exactly what it sounds like: an account in which money is reserved for emergencies or capital projects. Reserve funds are created in order to anticipate your association’s future and help you prepare for unexpected expenses.
Georgia is one of the states that doesn’t require associations to maintain a reserve fund, but like any savings account, it’s a smart idea. Even though they aren’t a legal requirement, Richard Breske, director of client relations – client accounting at FirstService Residential, said that he strongly recommends that associations have one, and he’s never worked with a community that didn’t choose to maintain a reserve fund.
To determine how much your association should keep in that reserve fund, you’ll need a reserve study. A reserve study will include a comprehensive assessment of your facilities, the age of buildings and systems, how well-maintained they are and more. There are firms that carry out this kind of work exclusively and it’s important to make sure that you contract with the right firm for your association.
An experienced reserve study firm will be able to identify needed critical repairs, poorly executed projects, provide various options to complete projects, and improve efficiency as well as evaluate energy use. Be aware that reserves are only calculated for the replacement of short-lived building or site components. This includes components that require replacement prior to the overall estimated end life of the buildings or structures. These reports are designed to provide reasonable, appropriate budgetary cost and useful life data based on market standards.
Reserve studies require a lot of information and detail, which is why partnering with the right reserve study firm is critical. Check out our tips to finding the right firm to work with your association.
1. Do your research.
Before you start contacting reserve study firms, you need to collect details about your association that they will want to know. You will need to create a complete picture of the community: location, amenities, number of units, descriptions of the buildings. Reserve studies need to be updated every few years, so it’s a good idea to update this information through the life of your community so it’s always ready. If you add a new pool, get that on the list as soon as the work is finished. Also have a copy of your business plan available if they request it.
2. Identify the contenders.
It’s easy to find a list of candidates. Start with your professional property management company; a sizeable company will have a list of qualified firms they regularly work with. The non-profit Community Associations Institute is also a resource for finding firms.
3. Have your questions ready.
Know what characteristics matter to your association when you are choosing a reserve study firm. Is having a significant local presence key, or are you comfortable with a national firm and someone visiting to do the study? Asking questions like how long they’ve been in business, how many studies they conduct each year, the background of the company, their pricing, how much time it takes to complete the study, any guarantees they provide and the experience they have with your type of community will help you narrow down which firms are the best likely fit. Find out if they offer a multi-year agreement. That will allow the firm to update the study annually, and reduce your investment (in time and money) in going through the process each year.
4. Get in touch.
Now that you have a list of firms and a list of questions to ask them, email or call each one and ask for standard information, including examples of their work. Once you’ve reviewed those with your accountant, ask the questions you’ve prepared and record the answers carefully. As you conduct these interviews, your questions may evolve. Don’t forget to request three references.
5. Always check references.
Contacting the remaining firms’ references should involve brief conversations. Ask simple questions such as whether the association was pleased with the firm’s work, whether their association is similar to yours, when the study was performed, if cost expectations were met, if the study was delivered on time, if there was something they wished the firm had done differently, whether they considered hiring other firms, what factors they used in choosing this firm, and whether or not they’d hire them again. Keep the list of questions to a maximum of 10. Be efficient, friendly and respectful of their time.
6. Contrast and compare.
Once your research is done, it’s time to make your comparison matrix. Here’s a simple suggestion: make a spreadsheet that lists your hiring criteria in the left-hand column, then list your candidate firms across the top, horizontally. After that, use your research to fill in the boxes. When your chart is complete, eliminate those that don’t meet your most basic requirements. The rest are up for discussion.
7. Make the call.
You’ve identified candidates. You’ve interviewed them and eliminated the non-contenders. You’ve developed a candidate matrix. And you’ve reached out to their references. Now you have all the tools you need to make an informed decision.
Partnering with a reserve study firm can have a significant impact on the future of your association. Follow these steps and you’re sure to find yourself working with a quality firm that meets your expectations. Only a solid preventative maintenance program as enacted by a good management company can help you to realize the full useful life of many of your most expensive components. And this helps to mitigate your current and future funding requirements.
For more information about how your association can use your reserve study to craft a preventative maintenance plan that works, contact FirstService Residential, Georgia’s leading property management company, today.