Before You Hire a Reserve Study Company, Read This

If you are on the board of an HOA that manages itself and you have been told it is time for a reserve study, the normal process goes something like this. Someone gets three proposals. The board looks at the prices. Someone asks why one company costs more than another, somebody else says they all basically do the same thing, and then everyone votes and hopes for the best.

We understand why. You are volunteers. You probably have jobs. You have plenty of other things to do, and nobody joined the board because they had a lifelong dream of comparing reserve study proposals on a Wednesday night. But this is one of those decisions that is worth understanding before you pick the cheapest number on the page. Not because you need to become a reserve study expert. You do not, and that is our job. You just need to know what a useful reserve study is supposed to do for you.

First, do not be afraid of it

This is probably the most important thing. Boards sometimes put off reserve studies because they are worried about what the study is going to say. What if it says we need to raise dues? What if we do not have enough money? What if the roof needs to happen sooner, and what are we going to tell the owners? Those are fair questions. But here is the thing: the reserve study is not making your roof old. It is not causing the balconies to deteriorate, creating inflation or making the plumbing wear out. Those things are happening whether you study them or not. The study gives you a chance to see what is coming while you still have some choices, and that is good news. Finding out that you may have a funding problem five years before a project is very different from finding out six weeks before the contractor needs a deposit. That is also why we ask boards not to hand us the old study and assume that is enough. We absolutely want the old study, but we also want to know what happened since then. Did you replace the boiler? Did the roof start leaking? Did you have a balcony inspection, or a special assessment? Did the board postpone a large project? Did you receive a plumbing proposal that made everyone at the meeting stare at the ceiling for a while? Send it. We want to know. A reserve study is based partly on what we can see today and partly on the history of the property, and that history is especially important in an association that manages itself, because board turnover can erase information pretty quickly. The quality of the study depends in part on the quality of the information that survives from one board to the next.

What are you actually buying?

You are not buying a prediction of the future. Nobody knows exactly when every component on a building is going to fail over the next thirty years. We can inspect, use experience, look at industry data, estimate costs and remaining life, and build a reasonable plan. But buildings have a way of developing their own opinions. A roof projected to last eight more years may start leaking in four. A pavement project may last longer than expected, and a project may cost more or less than the estimate. That is not evidence that reserve planning does not work. It is evidence that reserve planning needs to be updated as the property changes, and the real value of a reserve study is that it gives your board a framework for making those adjustments.

Along the same lines, do not let one number take over the conversation. Boards often want a single number that tells them whether they are okay, and we get it. How funded are we? That is an important number, but it is not the only number. Imagine two associations. One has a large reserve balance but also has a roof, siding and pavement project coming almost on top of each other. The other has less money in the bank but fewer large projects approaching and a funding plan that matches its needs. Which one is healthier? You cannot answer that just by looking at the bank account. You have to understand the timing. That is why we look at the whole plan. What is coming? When is it coming? What might it cost? What has already been saved, what is the association contributing, and has anything changed? That is the useful conversation.

Pick somebody whose report you can actually use

This sounds obvious, but it matters. You should be able to understand the report, ask questions about it, and discuss anything you disagree with. If the roof was replaced last year, the study should know that. If there is an inspection report that changes something, somebody should look at it. A reserve study is not very valuable if it gets emailed to the board, everybody opens the first four pages, somebody says it looks good, and then it disappears for three years. It should help you make decisions, build the budget and explain the plan to owners. And it should give the next board a better starting point than you had.

That points to the part of reserve planning that sometimes gets lost: this is supposed to reduce stress. People think the reserve study is going to create a problem. Done properly, it should do the opposite. It should take a bunch of unknowns and make them more manageable. Maybe the plan says you are in good shape. Great. Maybe it says contributions need to increase gradually, in which case you now have time to deal with it. Maybe a project needs more investigation, and it is better to know that now. The goal is not to guarantee that your association will never have an unexpected expense, because nobody can honestly promise that. The goal is to make sure the board understands what it can reasonably see coming and has a plan for dealing with it. That gives you something every volunteer board could use a little more of: peace of mind.

If your board has been putting off the reserve study because the whole thing feels complicated, give us a call. You do not have to have everything figured out before you contact us. That is why we are here.

Erik Sundquist, RS, is the managing partner of SMA Reserves, LLC, and a seasoned reserve specialist with a background that spans construction, real estate development and community-association consulting.