The most important element of a credible reserve study is valid component data. Inaccurate cost information, improper assessment of the condition of each component, and failure to examine ways of maintaining components to prolong their useful life can lead to underfunding, or almost as problematic, overfunding of the reserve account.
When you hire a reserve study consultant, you are paying for a professional opinion of the condition of each component. The value of that opinion is directly related to the knowledge and expertise of the person rendering it. You should always ask the consultant for references and a statement of experience and qualifications. Even this may not tell the whole story, however. Here are some other factors to consider.
1. Is the consultant locally based? Building and site conditions vary dramatically across the country. Materials used will vary according to regional preference and the durability of those materials in that climate. Conversely, similar materials will age at different rates in different locations. Contrary to the axiom that an expert is someone from out of town, the most meaningful work will be performed by someone who knows your local conditions.
2. Does the consultant thoroughly understand building systems? Over the years, companies have developed data bases for estimating the useful life of most major components. Data bases, however, only work for typical systems and components, not actual ones. Nothing can replace an actual inspection of the component in place. Furthermore, a competent consultant will not only be able to make a more accurate assessment of the remaining useful life, he or she can also exercise judgment. That means, if maintenance can prolong the useful life, it may be more cost effective. If staging the replacement or repairs can minimize expenses, that should be part of the recommendation. Anyone can look up numbers in a table. Only experienced professionals can apply judgment.
3. Does the consultant have the ability to diagnose problems and design repairs? A reserve study also includes an evaluation of defective components and systems in need of immediate repair. Such information is not found in tables. This is another reason to hire someone who knows how components and systems operate in the real world.
4. Will the consultant be available for questions and follow up? Our job as consultants does not end with the delivery of the reserve study. Often, there is a need to present and explain the findings to the board or the individual members. There almost always is a request to modify the report or try different scenarios. The consultant must be available to the board for follow up. Once again, a local presence makes this aspect of the assignment much easier.
5. Is the consultant capable of performing other, related services? If defects are found or needed repairs are identified, the next step will usually be to develop a plan of repair, assemble a bid package and seek estimates. The consultant should be able to help the association with this important work. Although it would be a conflict of interest for the consultant to actually perform the repair, it is very useful for the consultant to be available to oversee the repair to make sure it is done properly.
6. Does the financial model have credibility? Although we have emphasized the engineering talents necessary for a competent reserve study, it is also important to have confidence in the financial model used to calculate the reserve. How was the program developed? Who developed it? Who checked it? The model and format should be prepared by someone with an accounting background and comply with the guidelines of the American Institute of Certified Public Accountants.