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 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. 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.

How do you get a reserve study completed?

You’ll need to hire a specialized reserve study firm; they will be knowledgeable about 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. Upon selecting one, a reserve fund expert from the firm will tour your community or building with your property manager, documenting major systems and their conditions and ages. Your property manager should know exactly what questions and property details need to be mentioned on behalf of the board. When the reserve specialist finishes the tour, they will create a report detailing what repairs or replacements will be needed and when. They will also detail how much the repairs will cost and the steps you should take to ensure you have the funds available.

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.

When selecting a reserve study company, what should you look for?

First, make sure you align with the reserve study firm when it comes to your financials. How they view your financials should align with how your association manages them. If they look at your financials differently than you do now, that may lead to significant challenges later.

How do you ensure the reserve study firm understands your financials? Kim Pinillos, Vice President at FirstService Residential said, “Start by providing the firm with your current study and your complete reserve cash balance, so they have accurate numbers from the very beginning. By giving them this information at the start of the process, you’ll be on the same page, and the study will be more valuable in the long run.”

Follow these five steps when selecting a reserve study firm, keeping financial reporting in mind:

1. Provide an overview of your association. A reserve study firm will need information about your building or community, including the age, type, square footage, number of units, amenities, maintenance records, and the age of all mechanical components. Letting the firm know what repairs have been done is especially helpful – what was done, when, and what it cost. This will enable them to account for it in reserves. This process also helps ensure that the firm’s estimates are reasonable – not underestimated or overestimated. 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. “Get in touch with a subject matter expert who can answer specific questions you may have about your community or building,” said Jeff Musselman, vice president at FirstService Residential. “It could be your manager or someone who previously served on the board.” Musselman also added that if the reserve firm does not ask lots of questions, you might not want to entrust them with your reserve study.
2. Make a list of possible firms. Always start with 3 or 4 firms that seem like a good fit for your association’s needs. Following up with engineering firms that have completed work on your property in the past is one way to find a potential reserve study specialist. Your management company is an invaluable resource in vetting potential candidate firms. 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. If your building is subject to laws regarding structural integrity, your association may need to hire a reserve study specialist and a licensed structural engineer as well. If your property needs to meet structural integrity requirements such as inspections and certifications, work closely with your association counsel, engineer, reserve analyst and accountant to ensure that you properly meet this requirement.
3. Prepare a list of questions. Be prepared to meet with reserve study firm representatives and have a list of questions ready. 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, here are a few additional questions you should ask.
   • 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 Pinillos. “Putting a reserve study together is a collaborative effort – it requires input from both your board and management company.”
   • 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.
   • 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 often they will return.
   • When will you be able to complete the reserve study? Because of new requirements (like the study for structural integrity), many reserve analysts 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 will the study look like? Obtain sample copies of the firm’s reports. Different associations prefer different formats, and you should be comfortable with theirs. Pinillos said, “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 specialist to ask questions about the final report.”
4. Compare and contrast. Identify everything you want from the firm and enter it into a spreadsheet. 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 your spreadsheet is completed, it becomes a simple chart of pros and cons. Firms that don't meet your criteria are eliminated, and the others are contenders. You have all the tools to decide which firm is the right choice for your community.
5. Be sure to 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? What were the firm's strengths? Could the firm have done something differently? Ask about property inspection and financial challenges. For instance, Pinillos said to ask previous clients if the firm stuck to their original price or added on unexpected fees. “Most importantly, what was the firm’s response to issues and challenges when they arose?” she added, “When challenges arise, having a reserve study firm that is proactive and calm under pressure is absolutely critical.”

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.