The Future of Reserve Fund Studies: Enhanced Options

Enhanced Reserve Studies Offer More Detail

What is your condo’s future? Many condo boards may believe the standard reserve fund study will provide the information necessary for a solid financial future for their community. This traditional tool has served well for many associations, but more and more associations are now using a more sophisticated plan, namely, an enhanced reserve fund study. With the use of an enhanced reserve study the board has more than a replacement in-kind option to consider but also the possibility of upgrades of common elements to take advantage of modern materials or more energy efficient components.

Consultant Expertise

In the past, boards once sought only the counsel of accountants and attorneys for their reserve fund needs. Now more boards than ever are seeking help from engineers, architects, and contractors as well. The purpose of this expanded or broadened search for information is to add consultants who know what needs to be done to cost-effectively maintain a building, and most importantly, how to get it done at the right price.

The most important aspect of a well-developed reserve study and its resultant maintenance plan is that it is used.

For example, under an enhanced study your Reserve Specialist (RS) could perform a life-cycle analysis on the HVAC system in the community. This study could determine that rather than replacing the current heat pumps with a similar unit, instead by introducing high-efficient units the community will save 100 kilowatt-hours per month. At Central Maine Power’s current rates, this would provide the association with a present-worth savings over the 20-year reserve fund life of $3,540 per unit. In most cases the upgrade will pay for themselves within a reasonable time.

Ongoing Routine Maintenance

Routine maintenance is something many of us put off until it is too late. Whether it be your own car or even your own body, it is easier to procrastinate and fix things only when they are significant problems. The same is true for condominium associations. The pressure to keep maintenance expenses down, coupled with delinquent members or vacant units, means routine maintenance is often neglected.

However, since the board has a fiduciary responsibility to manage reserve funds wisely, maintenance items should not be overlooked. Proper maintenance can often dramatically extend the life of common element building components. A few examples come to mind.

  • Pavement deterioration. Failure to maintain walkways can lead to tripping hazards and related liability not to mention poor curb appeal to buyers.
  • Inadequate ventilation. This is a common problem. Inadequate ventilation causes moisture problems and overheating roof materials. Both are conditions that will lead to premature component failure and unhealthy indoor air becoming more of an issue in these troubled times.
  • Decks railings and connections. Often, deck details such as improper ledger fastening or lack of flashing are such that they may encourage rot. Failure can be dangerous.

Because maintenance has such a significant effect on the useful life of building components, it becomes an important consideration in the reserve study. So called “useful life” tables are helpful, but only provide average values for components. Proper maintenance can affect the useful life of some components by 50 percent or more.

This variability must be incorporated into any properly done enhanced reserve study. If building elements are to wear out prematurely, there may not be enough money to cover their replacement. The implications of underfunding are obvious.

Similarly, if these same elements can be determined to last longer than the average, the reserve may be overfunded. Overfunding is almost as troublesome as underfunding. It represents less than optimum use of unit owners’ personal resources. Property values may decline if maintenance costs are unrealistically high. The money saved through proper funding may pay for the reserve study – and then some.

Benefits of Enhanced Reports

A competently prepared reserve study can do more than prevent over or underfunding. Enhanced analysis includes options for modernization, maintenance, and repair planning. It means, although roofs may have an average 25-year useful life, certain exposures (e.g. southern) may cause those surfaces to wear more rapidly than others. It may be more economical to schedule replacement in phases, thereby minimizing the outlay in any one year.

An enhanced report will also contain suggestions for routine maintenance that will extend the useful life of various components. This can be developed into a complete maintenance plan, in coordination with management and maintenance personnel. Proper maintenance and appropriate reserves are intimately connected. Be sure your engineer or reserve consultant understands this relationship.

Though it may seem obvious, the most important aspect of a well-developed reserve study and its resultant maintenance plan, is that it is used. Both the board and the unit owners need to buy into it and use it as a planning tool and a transition guide for future board leadership. Part of this process is to make the plan visible. Some associations post the plan on their web sites or in a common gathering space. However, whatever method is used, do not let the reserve plan wither in a desk drawer but rather use it as a living document to be referenced with every major future decision.

So, is an enhanced reserve study in your condo’s future? Not all associations need one. Every community is different due to maintenance history; age; material and equipment in place; etc. The best bet is for the board to ask for this option in their reserve study procurement request. Not all reserve study firms provide this service. The board needs to ask and then select the professional firm judged to meet the community’s specific needs for the future it deserves.

Article written by Jack Carr, P.E., R.S., LEED-APCriterium Engineers
Published in Condo Media December 2020 edition
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