FAQ
Frequently Asked Questions
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What is a reserve study?
A reserve study is a long-term financial plan that is used to to make informed decisions on the amount of funds set aside to pay for future major repairs and replacements.
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What components are included in the reserve study?
Components are included if they meet the four tests below:
- The component must be the responsibility of the Association to maintain and replace.
- The component must have a limited Useful Life.
- The component must have a predictable Remaining Useful Life.
- The component’s Replacement Cost must exceed a minimum dollar threshold.
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How long does a reserve study take to perform?
We always ask for more time than we think we need in our proposals because we prefer management and the board be pleasantly surprised when we deliver early rather than disappointed if we were to be late. That said, it can vary depending on the location, personnel available, and type of study being performed. So please just request a proposal, and we’ll give you an idea for your specific property at that time.
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Can we put in allowances for legal fees, insurance deductibles, or other contingencies?
Generally, we try to accommodate management and the board and we will do as you direct with regard to these “intangible” types of allowances. We do, however, recommend you consult your bylaws or other governing documents to ensure that you abide by them. Remember, we are not attorneys so we cannot give you legal advice on your documents. We will do as you direct and we always recommend contacting a qualified attorney for legal advice.
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What happens if we disagree on items in the study?
Our estimates are just that – estimates and represent our opinion, which is one of many. Whenever possible, we try to do as management or the board directs us to do. You can always provide us with a 3rd party opinion and we may be able to incorporate that into your report, which is generally good practice to do anyway as getting the costs directly from a vendor you will work with in the future who knows your property will generally result in the most accurate pricing. Nevertheless, we have processes in place to try to accommodate as we know opinions differ, but please note certain types of studies (statutory reserve studies, for example) may have less room for presenting opinions other than our professional opinion.
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What factors determine the fee for a reserve study?
The main factors that determine the fee for the reserve study are the (a) level of service, (b) size of the property, and (c) number of components to be included in the study.
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Will a reserve study guarantee that no future special assessments will be needed to fund future major repairs and replacements?
No, a reserve study cannot eliminate the chance of a future special assessment. The study can be used to mitigate these risks, assuming prudent financial decisions in funding reserves and good fortune in the actual timing and cost of estimated expenditures, which can differ materially from estimates, of course.
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How often should a reserve study be updated?
You may want to update your study when you:
- Solicit bids on reserve projects where actual costs differ or you plan for upgrades in products, workmanship, etc.;
- Want to see how the timing of large projects affects reserve funding; or
- Other changes, such as changes in rates of interest or inflation, which are currently very volatile.
While we do have a financial incentive to make this recommendation, the cost is nominal especially if we do the updates in the same year since the work is substantially finished. That is, if you’re planning in advance, the fees for service come down. Consistent communication also gives us an opportunity to let you know about industry changes and problems we see with other associations so that you can either avoid, plan for solutions, or set aside funds for problems well in advance.
Management and board turnover are generally higher along with other legal quagmires when owners are surprised by increased assessments.
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What Do Other Associations Do?
A handful of associations are constantly updating their studies regularly, and it generally leads to better results. Some associations update their studies annually with either offsite or onsite updates depending on their objectives. While many associations opt for updates every 3 years with most doing nothing at all for long periods of time.
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How big a change does inflation or interest rate changes have on a study?
Time can erode reserve funds when small differences between expected and actual results are unfavorable. For example, a condominium association adjusted inflation by 1% and found that the change resulted in almost a 100% decline in reserve funds available after 30 years. This condominium association projected $6.5 million of reserves at the end of 30 years, which declined to only $3.3 million projected surplus after the inflation adjustment.
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Can we have studies that have different inflation rates, interest rates, or other assumptions?
Yes, absolutely. We can do studies to change the variables. If you know what you want to do upfront, let us know. You can always do these updates later if you want to see the results the following year. It’s good practice and then you already have a plan in hand if factors change either favorable or unfavorable over time.
Reserve Study Report
Get an idea of what we do
You can see a sample of our report, how the whole process works, and even get an idea of our fees for service.