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January 23, 2018 By admin

Five Myths of Reserve Studies

Reserve studies are an essential part of property management, especially for larger community associations.  Many communities get them performed and rely on them for the long-term planning part of their budget.  Nevertheless, some communities are reluctant to have one done.  The following are five myths regarding reserve studies.

Myth 1:  Reserve studies are too expensive

The cost of a reserve study typically ranges from $1000 to $5000, depending on the age and complexity of the community.  While the focus of many associations is to keep the budget as tight as possible, a reserve study is a very useful tool that likely can be used for several years.  It is quite likely that not having a reserve study done will cost the community far more because of deferred maintenance or special assessments.  Additionally, a reserve study can offer tips on how to maintain the community’s assets and help plan what order to perform major projects.  Associations would be wise to focus on the value of a reserve study rather than cost.

Myth 2:  We already know all the items

The reserve study’s component list is all the items we already fund for in our budget, so why do we need someone to tell us what we already know?  Getting all of the proper reserve items on the reserve schedule is the most common mistake associations make when they plan their own budget.  A reserve study will likely turn up at least a few items that an association is not currently funding.  Associations are typically aware of roofing, painting, paving, and other common items but sometimes may omit things like concealed fencing, stormwater drainage, eroding pond banks, and lift stations.

Myth 3:  We can do our own analysis in-house

While it is possible for some associations to do their own analysis, most associations probably should not.  To do the reserve analysis in-house, the association will have to have people proficient in construction trades, have access to recent cost data, have quantities of all the reserve items, and be able to estimate the lifespan and remaining lives for all items.  That is a lot of areas for the board to knowledgeable about as well as be able to identify all of the proper reserve items.  Another point to having a professional reserve study done is that it takes the liability off of the board and lets them uphold their fiduciary duty to the community.

Myth 4:  It will make us spend extra money

It is key to remember that the reserve analyst is not spending the association’s money, but rather suggesting how they should use it in an optimized way.  The association is responsible for how they want to spend their reserve funds.  Just because an item is listed to be replaced in 3 years does not mean that is when it has to be replaced.

Myth 5:  A reserve study will make our dues increase

No associations have the same set of items and the same account balances, so there is never a way to know for sure if the dues will increase or decrease.  Nevertheless, fearing that the reserve analyst’s findings may increase dues is not a reason to not have a reserve study.  An example might be that an association forgot to fund for something, in which case putting it on the reserve schedule is helping the association actually have time to fund for that item instead of ignoring it.  Omitting reserve items whether deliberately or not is poor property management, and it will certainly cause the association more money in the long run because the item will wear out faster with no preventative maintenance and then have to be paid for with a special assessment.

Filed Under: Blog Tagged With: DIY Reserve Study, Reserve funding mistakes, Reserve Study, reserve study process

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