Wednesday, September 9, 2009

Neda Firouz - Reserve Study Components

When reviewing a reserve study, it is important to keep in mind that reserve studies are only required to list components that have a 30-year life expectancy or less. Therefore, you will not see items like the foundation or other components that have greater life expectancies. For properties that were built in the 1970s, it is especially important for managers and Board of Directors to be vigilant of the component list.

For example, I worked with a community that was built in 1971. The community had 20 exterior, three-story staircases that were structurally failing. The plumbing was also in poor condition, but there was no consideration for plumbing replacement or the staircases in the reserve study. Upon inspecting their reserve study, I was able to determine that the study was lacking components that were costly but necessary to handle. After factoring those elements in the study, the Association needed an additional $5,000,000 to be able to address those issues. The reserve funding percentage had suddenly dropped from 31% down to 10%. This was not an ideal situation, but ultimately, it was necessary for me to address the matter. Reserve study companies often just use prior component lists and update them.

To avoid a situation like this, it is important to regularly review the components, ask your reserve study companies to be extra mindful of any items that were not included but may now need to be, and to discuss this with your community managers.

As usual, if you have any questions, please feel free to contact me.

Neda Firouz