Learn How Your Board Can Choose The Right Condo Reserve Study Firm
A condo Reserve study, and its relationship to capital improvements and preventive maintenance, were discussed at length in our guide to capital improvements. To refresh, a condo reserve study is a report about the condition and likely useful life of all the major components in your property. The report also contains a recommended schedule for repairs and replacements capital improvements that will be needed over a short or long period of time (e.g. 3, 5 or 10 years), estimated costs for these projects, and a recommended plan to fund each project. By having this information readily available, a board is enabled to allocate money every year toward the cost of future capital improvement work, or to perform unexpected emergency work.
A condo Reserve study is carried out by specialized firms, often with engineering expertise. A reserve specialist from the firm will tour the property with members of your board and your general manager or property manager, documenting details of the major mechanical systems and infrastructure components, their ages and physical and/or operational conditions. Then the firm will generate a report itemizing recommended work to be performed during various time frames ranging from high to low priorities to help guide the board.
Finding the right Condo reserve study firm is crucial to your property’s financial health. If the firm’s projections are off, the board may find itself having a) to levy a special or capital assessment with shareholders/unit owners, b) (for cooperatives) to draw down on an existing line of credit, which will increase debt service, or c) to take out a loan to cover an unexpected project.
It is important to provide the firm with the correct figures at the beginning of the process. Remember to use the total reserve cash balance, so the firm’s report begins with an accurate cash value.
In addition to keeping financial reporting in mind when looking for a reserve study firm, we suggest that you follow these steps:
Paint a picture of your property.Any condo reserve study firm is going to need basic information about your property: 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 property. If you can find a subject matter expert on your property that’s ideal. It may be your general or property manager; it may be a long-time board member.
Identify possible firms.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.
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 special 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 property with the reserve study firm. If a firm rejects that collaboration, it is probably not the right firm.
- How much time will the firm spend on the initial 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.
- What will the study look like? Get sample copies of the firm’s reports. You may prefer a certain format and you need to be comfortable with what is presented. In addition, some states have laws requiring reserve studies. Please check with your property’s attorney and accountant to make sure that the firm's sample reports meet state criteria.
Check their references.Once you’ve met the firm and feel that they might be a good match, the next step is to check their business references. Don’t be shy about getting in touch with other properties they’ve worked with to get personal and/or professional opinions about the quality, price and pace 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 firm excel at?
It is recommended that boards ask what the challenges were with the firm, on both the building or property inspection side and the financial side. Did they stick to their price or add on unexpected fees? How did the firm handle issues when they arose?
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 property.
After your condo reserve study is finished, you should feel more confident about financial planning for your property. A thorough study will help you set up your maintenance plan, save for repairs and replacements when needed, and help keep your property financially healthy for years to come.
To find out more about Capital Improvements, click the link to our guide below
-Capital Improvements Guide