Reserve Study Changes

Started by SusanO3 • 10 replies • 265 views

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SusanO3 (California)
Posts: 163

Posted:

Hi All: I know Reserve Studies are planning tools for Boards. Our HOA is 34 years old and it is becoming clear that the plans for our roof underlayment and roof tiles are not realistic. The reserves assume much longer lives than recent quotes are telling us.

I'm the Chair of the HOA and would like to form a Board subcommittee to go through our reserves with me and adjust to reflect reality. I suspect that no one on the Board has really thought about the big ticket items. Is this an OK thing to do? I don't want to say anything in regular meetings until I have some agreement and understanding in the Board. Thanks, Sue

CathyA3 (Ohio)
Posts: 6,299

Posted:

If it's been a while since your last study and things like roof components are breaking down more quickly, I think the correct thing to do is have another reserve study done.

The good companies employ knowledgeable people to assess things like this. It's unlikely that homeowners and even board members have the necessary expertise. In addition, you don't want volunteers climbing around on roofs - you want professionals who are properly insured for the work.

Another thing the study assesses is the financial end of things: projected inflation rates and the like. Again, a few homeowners *may* have the necessary knowledge, but it's not guaranteed.

I've often seen recommendations of a reserve study done every 3-5 years, with more frequent studies done if there are any changes to the assumptions made in the previous one. It's possible that you can have professional studies done periodically, with association-performed updates in between - but this is largely dependent on what items are considered "reserved". Small associations with very little in the way of common area can often handle things themselves, but larger communities (especially condos) with a high percentage of common area probably can't, at least not completely.

Uninformed opinions will give you a false sense of security. Lenders also look at things like how recent your last reserve study is, as do many states with laws governing community associations.

SusanO3 (California)
Posts: 163

Posted:

Thanks Cathy:
We have professional studies done every three years, and annual updates. Even so our quotes for roof repair to not match the reserve study. Hence my question about forming a sub committee of the Board to really look at the reserve study. Is that an OK strategy? I have only been in this community 3 years, and Board for 2 and Chair for 1 so mu knowledge is limited but I'm learning fast! With help from folks like you.

KerryL1 (California)
Posts: 14,550

Posted:

Aside from the roof underlayment, Sue, what 4-6 reserve components do you think have been assigned an incorrect replacement cost? Or Remaining Useful Life (RUL)?

I think I'm agreeing with Cathy. You really should use a certified reserves specialist or analyst, especially one who works in your geo. area. You really should follow the Business Judgment Rule, which states, roughly, to rely on experts. Reserves specialists read manufacturer's specs. the know the effects of your local climate on things like roofs. My salt air, sunny coastal roofs has a different estimated life than desert roofs or roofs 10 miles from the coast.

Imo, I'd be aa waste of your & the Board's time to try to a task that should be left to the professionals.

Calif. requires an onsite visit by a reserve specialist every three years. As I think I wrote elsewhere about your situation, they are happy the meet with boards and owners too to explain their reserves study.. Invite yours to meet with your Board and maybe owners.

Ours met with our board and about 20 owners very recently, which I attended by Zoom. The specialists did a fine job. One attendee via Zoom fell asleep while he was on video, for the last 10 minutes He'd applied to fill a recent vacancy on our board, which chose a different person. Whew!

MargaretM5 (Hawaii)
Posts: 34

Posted:

I think it's great that your association has a reserve study done every three years, with annual updates--so many don't. But as you're finding out, ordering the study is just one part of the "due diligence" required to be properly prepared for expensive replacements. Since the board is starting to question the accuracy of the study, I think a subcommittee to prepare for your next update is an excellent idea.

Should you choose a new reserve study company? It's common for associations to choose the lowest bidder, but the study may be more reliable if it's done by a more expensive company with more experience or specialization. Does your company rely on average useful life tables, or do they go on the roof to inspect? Are they factoring in inflation and the costs of labor and supplies? How much pricing expertise do they have? Have you checked reviews and references recently?

Is the association giving complete and accurate information to the reserve company? Are you certain that your list of components is correct? Have you been honest about deferred maintenance? Have you made them aware of any known or suspected problems they should factor in? Have you shared information about inspections or repair/replacement bids you have received?

Is the board reviewing the draft and asking questions before approving it? Every board member should read the draft carefully and understand it well before voting to approve. If any member doesn't understand it, see if the reserve company could give a presentation to explain. Ask a lot of questions. Ask for changes to be made if needed.

I'm learning about all this myself. I was on the committee to figure out what our reserve components were and it was a lot more complicated than I thought it would be. Now we're needing to replace a fence that our reserve study (from last year) said had another 10 years of life. And it's costing twice as much as the study estimated.

Best of luck.

TerriS6 (California)
Posts: 3,284

Posted:

Our board had a reserve study done for the first time 2 years ago. Our only amenities are the roads and a natural green belt. The reserve study writer never visited the site then wrote a report (stating they had never visited the site), recommended we were underfunded and needed $600,000. to repave all the roads, raising assessments 20%/year indefinitely plus imposing an $8,000. special assessment per lot. My belief is the study is invalid because there was no "diligent visual inspection" and the study did not include or exclude the green belt.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Susan

If you are questioning the roof issue, then bring in a qualified roofing company to examine and report on the roof status versus depend on a reserve study generalist.

SheliaH (Indiana)
Posts: 6,964

Posted:

Quote:

Posted By TerriS6 on 05/05/2023 7:42 AM
Our board had a reserve study done for the first time 2 years ago. Our only amenities are the roads and a natural green belt. The reserve study writer never visited the site then wrote a report (stating they had never visited the site), recommended we were underfunded and needed $600,000. to repave all the roads, raising assessments 20%/year indefinitely plus imposing an $8,000. special assessment per lot. My belief is the study is invalid because there was no "diligent visual inspection" and the study did not include or exclude the green belt.

What type of reserve study did you get - check out this article and you'll see there are different kinds: https://www.hoamanagement.com/hoa-reserve-study/ If you're on the board, did you and your colleagues speak to the company to see what type of study you needed? Did someone object to the full study because he/she/they thought it was too expensive? That could be part of the problem here. The writer made some recommendations, but that doesn't mean you have to accept all of them. On the other hand, he or she may be basing the opinion on similar communities - did anyone ask? Go back to the specialist and have a conversation - if you want a do-over with the same company, you could ask for a reduced rate.

By the way, it's been estimated that 80% of HOAs in this country are underfunded, so even with a do-over, you may still be looking at significant increases due to inflation, supply chain issues, etc. It's annoying, but it's better than a special assessment down the road.

Surside demonstrates the importance of getting reserve studies and considering the recommendations carefully, so if you're balking at a 20% increase in assessments every year, I understand On the other hand, there is inflation and it sounds like you're a new community. If so, it would have been nice if the developer had done a reserve study before turning the community over, but sadly there are a lot of things developers don't do and homeowners are stuck figuring all of this out

You didn't say whether you already have a reserve fund and although there are older conversations on this website about doing reserve studies yourselves, this really isn't a job for first-timers. You can read them anyway to get some ideas on what to look for - if you don't have anyone with the skill set for a DIY study, at least you'll know what to ask a potential reserve study specialist.

Finally, opinions on including landscaping or not vary for reserve studies, but you might be able to get some ideas by having a landscaping expert or arborist if you have trees to come out and take a look at what you have. You could get some recommendations as to how long the plants and trees are estimated to live and what it'll cost to replace all that. In fact, one reason landscaping doesn't make reserve studies is that you never know what Mother Nature will cook up. Nonetheless, if you want to put this in a reserve study, I suspect you wouldn't replace everything all at once. The grass may have to be addressed sooner if people do dumb things like drive all over it. It may be easier to make green belt maintenance a line item in your operating budget and make adjustments that way.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By SheliaH on 05/05/2023 9:08 AM
If you're on the board, did you and your colleagues speak to the company to see what type of study you needed? Did someone object to the full study because he/she/they thought it was too expensive?

This.

Every reserve study company I have seen presents a draft to the board before its final report. The buck stops at the board.

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