Condo Media - September 2019 - 38

Reserve Study Pitfalls
PAUL HUIJING, P.E., EBP
Regional Vice President
Advanced Reserve Solutions

FAILING TO COMMISSION A RESERVE STUDY.
There is no more serious error than this.
FAILING TO APPROACH THE RESERVE STUDY
IN A THOUGHTFUL, ORGANIZED WAY.
Huijing describes the reserve study as "a journey"
for which, he says, "boards need to create a roadmap."
The starting point, he suggests, is a comprehensive
list of all the components for which the association is
responsible. You can't estimate repair and replacement
costs over time, he says, unless you know exactly what the
association will have to repair and replace. "Some items
are major, some are minor," he says, and the association's
list should include everything. The small hallway lights
outside doorways can be easy to overlook, he points out.
"But if there are 150 of them and they cost $200 a piece,"
the replacement cost will be significant-and unfunded if
not included on the reserve replacement list.
STARTING RESERVE PLANNING TOO LATE.
Reserve studies typically have a 20-year time frame-at a
minimum-estimating the reserve contributions required
to fund capital expenditures over that period. Huijing says
he was contacted recently by an 18-year-old community
that never established a reserve fund.
"They only have two years to close their funding gap." The
sooner boards tackle the reserve planning process, he notes,
"the more organized and fair" the funding process can be.

The report must not only be clear,
he emphasizes, it must also be
digestible. If the recommendations seem
unachievable, boards will ignore them.
FAILING TO INSIST ON AN UNDERSTANDABLE,
USER-FRIENDLY FORMAT FOR THE RESERVE STUDY.
This is an issue boards should address in the bidding process,
up front, Huijing says, by asking companies to submit sample
reports. "Can you get a good idea in 10 or 15 minutes what
the report is saying and can you explain the information to
owners?" If the report isn't clear, Huijing says, "you're going
to put it in a drawer and forget about it."
The report must not only be clear, he emphasizes, it
must also be digestible. If the recommendations seem

CONDOMEDIA September 2019

unachievable, boards will ignore them. Huijing suggests breaking large repair/replacement projects into smaller segments that
can be tackled at different times. Instead of a single line item for
replacing all roofs, he suggests "phasing roof replacements separately in a logical order," based on their ages and conditions.
Similarly, light replacements could be organized as several
projects based on their location-exterior and interior-lobby,
hallways, and common rooms, for example.
EXCLUDING COMMON COMPONENTS THAT
FALL OUTSIDE THE STUDY'S TIME HORIZON.
If windows with a 30-year life expectancy aren't included in
a 20-year study, Huijing notes, the funding plan won't cover
their replacement.
FAILING TO UPDATE THE STUDY
FREQUENTLY ENOUGH-OR AT ALL.
For associations that are "well-organized and well-funded,"
updates every four to five years should be sufficient, Huijing
says-to reflect changes in costs, track how different
components are aging, and modify the payment schedule
"based on accomplished repairs and replacements."
Associations that "are struggling to keep up" will need more
frequent updates, he says, "to ensure that their funding plan"
will cover the repair and replacement costs they will face.
A two-year review might reveal a small funding shortfall;
a five-year review would likely find a much larger gap,
requiring a larger increase in owners' fees.
FAILING TO SET REALISTIC FUNDING GOALS.
Ideally, reserves should be 100 percent funded, in the same
sense that everyone should maintain their ideal weight.
The reality is, "no one gets to 100 percent" reserve funding,
Huijing agrees. "But associations can create a reserve fund
that is healthier than it is now." The goal, he suggests: "Try to
get above 50 percent. You can't predict everything, he notes,
and you can't anticipate every potential funding requirement.
For example, he notes, water and sewer lines and plumbing
pipes, which are supposed to last forever, sometimes break.
The higher the reserve funding percentage, he says, the betterprotected the association will be against these "unexpected"
expenses and the less likely it will need a special assessment
or a bank loan to finance them.
LACKING A PLAN FOR PRESENTING THE RESERVE
FUND STUDY'S RECOMMENDATIONS TO OWNERS.
Realistic and consistent reserve funding will almost certainly
require periodic fee increases, which boards don't like to
announce and owners don't like to hear. Instead of explaining
why an increase is needed to achieve a reserve funding goal,
Huijing suggests boards develop "an expense map for the
future," showing owners that if the current reserve funding
level is unchanged, the reserve balance will fall to zero.
"That usually gets owners' attention."

Condo Media - September 2019

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