Frustrated with reserve study underfunding everything

We have large national reserve study firm that does annual reserve studies for us.

Prior to my joining the Board, our reserve studies showed that we were 87% funded which is great and incredible. Happy days.

Then I joined the board, and started to question some of the amounts of expected replacement cost. For example, the reserve study estimated a fence replacement at ~$38,000. This seemed a bit low, so I got an estimate and one company came back at $60,000 and one at $84,000. So I provided the estimates to the reserve study firm and had them update their numbers.

Did this for a couple of other items.

The result is we dropped to 64% funded.

Now I'm looking at mailbox. Looks like they way underestimated the cost of mailbox replacement. Same story with playground replacement. Item by item, each one is estimated at about 1/2 of the actual replacement cost.

So instead of being 64% funded, we are really more like 64% funded of 1/2 funded, or 32% funded. By the time I finish getting estimates and having them update their numbers, we will be sitting at 40% funded.

Thus, our homeowners will see the numbers under my watch as president and see that reserves have declined from 87% to 40%, and think the Board is draining reserves. Rather, we're fixing mistakes made by the reserve study company.

Any thoughts about this mess?

I think with your explanation above in addition to being able to show account balances, that should be all that's needed to be able to describe the situation. With enough discussion, people will be able to see that account balances have remained relatively the same (+/- explainable additions or expenses); therefore, reserves are not being drained.

Those financial statements that you're reluctant to prepare and provide would come in handy also to help with the story-telling.

I said "update" the reserve study annually. By "update" I meant tweak the reserve study spreadsheet a bit if a reserve component underwent major repairs; has deteriorated faster than expected, changing its useful life by a lot; and the like.

California statutes require an annual update (to be distinguished from a full-blown study with say an on-site inspector).

I was referencing Henry's statement that said, "We have large national reserve study firm that does annual reserve studies for us."

I was just curious of they really do this annually?

The law in my state requires that we pay a reserve study firm to do annual updates of our reserve study. Offsite updates are required annually and every 3 years we have to bring the reserve study person onsite to do an onsite study.

Thanks for the info.

In my opinion, it is the Board that has assigned the 30 year life.

I know you are in Washington, and the Washington statute is a bit different from the California statute. Still, the wording from the relevant California statute section, California Civil Code 5550, seems relevant for general discussion purposes:

The board shall review this study, or cause it to be reviewed, annually and shall consider and implement necessary adjustments to the board’s analysis of the reserve account requirements as a result of that review.

I wouldn't sweat it too much Because the board can always set aside more money from the operating fund to put into reserves. It seems to me that based on past metrics, reserve studies go off an average
cost and not actual cost. We are having the spa re-plastered, instead of going with one of the two lowest bids, we are going with the higher bid which is about $1000.00 higher than what the reserve study
has called for. Reserve studies are just a template, they are not written in stone, the board can always find a bid higher or lower than what the reserve study calls for.

HenryS7, the Board has the right and the duty to discuss the estimated remaining useful life with the reserve company. If the board thinks it should be a different number, then in my experience reserve companies are open to adjusting the number, within reason.

When was the last onsite visit as required in your state Henry? Who accompanied the reserves specialist and answered her or his questions? It sounds like the onsite visit was flawed. Surely the analyst didn't just drive around and visually assess the estimated remaining useful lives and replacement costs????

So, yes, in CA, we have annual studies 2 are offsite with the lowest level being the PM & the analyst just updating replacements and resetting their estimated lives. The 2nd level is in more detail. The top level, which we had in '21 involves a visit, a meeting with the Board, and the analyst walking the promise with the PM and the building engineer. It literally would be a terrible study if the analyst was off by 50% on all components!!

I did corresponded with the analyst and he agreed to several changes, but only one was very significant. A few other did involve increasing the est. remaining useful life. The Board accepted the study.

Analysts always rec Owner contributions to bring the reserves up to at least 70% funded. This can be too difficult for some associations to do all at once,

Henry, in your case, since the items that were incorrectly evaluated are clear & obvious to owners, I'd name a few of them for Owners because it seems they'd be clearly understood. Augustin's letter looks pretty good. I disagree, however, that 40% funded is "unacceptably too low." I believe one national reserves firm, actually started by a rocket scientist, puts 40% fully funded at the "moderate" risk level for a special assessment.

Something like Henry's case did happen to us several years ago. We were increasing our contributions eery yer and had finally moved up to 50+% funded. A new reserves analyst added a huge component that we hadn't had in the study. And overnight we were 36% funded! Still not horrible but after our careful work to increase our % funded, it was discouraging.

Sadly, many Board members aren’t much interested in being “educated”. In their minds - ignorance is bliss.
SO SO tired of hearing people say … “Oh - they’re just volunteers doing a thankless job”. Well - just because you’re a volunteer you don’t get a free pass on being competent, ethical and transparent. It’s not an either/or. We don’t need volunteers who are incompetents, with no desire to listen, learn and no sense of “knowing what they don’t know”. People that don’t even read their “Board Packets” before a Board Meeting - and aren’t shy about saying so as they fumble through a meeting, never missing a chance to complain that the meeting is taking too long.
Like sausage making - sometimes it is beyond painful to watch people make decisions that require critical thinking skills, logic and some analytical ability. PAINFUL.

No kidding! It should be noted that the leadership in any organization is a reflection of the people in it - note what's happening in congress, state legislatures and city council everywhere. If you wonder why it seems nothing gets done, start with seeing how closely the homeowners are attending meetings (at least go to the annual) and asking questions and making suggestions besides complaining about assessments being too high. Unfortunately, many people withdraw, wanting to know less and less about the problems or they think they'll be gone before the ish hits the fan.

I say If you are in a leadership position, you need to take it seriously and do what's necessary to do the job. That's why education is so important - it's not about perfection (no one's perfect). The least you can is crack open a few books, ask questions and pay attention to some of the conversations on this website. There are a lot of people who've been through hell and back with their HOA and used the experience to move the board in a new direction and yes, there were cases when the old board had to be sacked to get it done

I personally give them a free pass on the smaller stuff. Why? Because I do not want to be on the board. As a manner of duty honor country and the American way, if I am not willing to step up, then I am going to cut a lot of slack to others who are.

MichaelS56's post about the involvement of directors in reserve planning is music to my eyes.

I agree with everything that has been said about trying to educate yourself if you've taken on the position, even if it's volunteer. In the past we have had way too many board members who took the position because they were on an ego trip and liked the idea of the title and of "being in charge" but didn't like the idea of having to actually work at it. And it IS work.

I enjoy the work because I like to think of myself as a lifelong learner. I enjoy learning new things - keeps my mind sharp. I know more about roofs, roads, landscaping and reserve studies than I ever thought I would need to know. Today I learned that in Florida you really want to make sure you have Notice of Commencement signed and filed with the county clerk at the beginning of a job or you cant get an inspection to open your pool after repairs. And you have a lot of angry residents. And that our PM needs a little bit more oversight to make sure that gets done.

What a breath of fresh air to read a post like yours. You’ve obviously fought the same battle over the past years. A Board member that thinks he’s the smartest guy in the room, has a private agenda, is incurious about the important work he has undertaken to perform diligently in behalf of all owners, and has the unwillingness to learn - is a dangerous addition to any Board. “Volunteers” like that are a huge liability - and would do best to keep away from such important and difficult work. Our Board President, who lives half way across the country most of the year, would often attend a Board meeting by telephone, while driving somewhere. Once he apparently apologized for having to pull off to the side of the road to continue the meeting. Yes - true story.

The same guy that obviously doesn’t even read the Board Packet completely and thoroughly before a Board Meeting. Doesn’t even have a clue about what a blatant conflict of interest looks like, stonewalls, deflects, kicks life/safety issues down the road for years (how about knowing of 45 year old main circuit breaker panels that have the breakers “held back” by wire so they don’t trip), and fiddles around with reserve studies by excluding major components (such as said circuit breaker panels) and proudly boasts “there will never be a special assessment while I am president! And for good measure, doesn’t enforce CC&Rs evenly or at all, and facilitates friends breaking the CC&R’s by telling them to go ahead, he’s on the Board, no worries. And for good measure - then lied to owners about his knowledge and involvement in such nonsense.

Reading these posts, and as a new member, I am glad to see that my initial instinct was correct, and that the only practical way of dealing with such a nightmare Board is to cite them out. But easier said than done. When you’ve got owners that have basically given up, or don’t really give a damn, or who suffer from the Stockholm Syndrome, it is a huge rock to push up the hill.

Any practical advice for how to approach such a situation is appreciated. And yes, I am running for the Board and have pulled together a core group of owners that are smart, “get it” and are trying to constantly shine a light on each new issue we uncover. And the latest? A Board that decides we cannot afford to follow California Pool and Spa safety regulations - so we haven’t been for the last 6 years. And a professional manager who basically says - hey - what can I do about it? I told them what the law is.

God - give me strength.

Please start a new thread. Please leave out hyperbole. This forum gives advice about compliance with the governing documents (CC&Rs and Bylaws, typically) and also situations of a political nature.

Yes, Scott, please start a new thready using thirty neutral language.

When you start it, tell us too, how many units or homes are in your HOA and how many directors are on the Board. Also, how many board seats up for (r)election and when the annual mtg. will be held.

Ok. What in the heck is “thrifty neutral language”. Lol.

Thanks SheliaH. I realize that it’s going to take awhile for sure. So many issues to address. But it does all start with governance you know is engaged, knowledgeable, willing to learn and be worthy of the TRUST that we as owners place in the Board. Breach that trust - and it quickly becomes a problem. I appreciate your wise and calming words of advice.