If there is one thing Boards strive for most, it is saving money; especially in the current financial environment. And if there is one thing community managers don’t have enough of, it is time. It seems like every year Sacramento passes some new legislation that adds another layer of process to the business of community management. Now, they will tell you the legislation is passed with the good intentions of protecting the homeowner, but is that really the case? Or does it end up being another costly pass to the already cash-strapped community? As the famous literary titan of the 18th-century, Samuel Johnson, said, “The road to hell is paved with good intentions.” We are not going to hell for passing more legislation, but I think you get my point: this road filled with good intentions includes the compliance-driven reserve study. How many communities would get a reserve study if it weren’t required? Or better yet, how many actually follow the law and get one every three years? I know the number is much lower than you probably think. There is no reserve study jail.
Speaking with industry pioneers who have been around or were apart of the creation of the Davis-Stirling Act, it is apparent that the reserve study really doesn’t live up to what the intentions were back in 1985: plans that communities could adopt and follow to pay for future improvement projects. Instead, it has become more of an accounting focused, compliance driven report that doesn’t even require a community to fund. How crazy is that? It was created with the best of intentions, but given the increasing amount of deferred maintenance within communities and the lack of reserves that communities have to work with, these good intentions won’t save communities from the risk of a special assessment. Why do you think the California Association of Realtors sponsored the Reserve Summary Disclosure legislation of 2005? Their constituents were getting hammered by clients who paid top dollar for a home or condo, and were then whacked by an undisclosed special assessment. The increase in special assessments is growing, and now is the time to use the reserve study to help mitigate some of this risk and save some time in the process. Below are three tips on how to develop a “real world” working application of the reserve study with the purpose of the saving the community money, mitigating the special assessment risk, and saving the community manager time:
TIP #1: Develop a Smart Project Plan, Not an Accounting Driven Plan
The reserve study provides an accounting driven disbursement report, which is created by evaluating the remaining lives of individual components. This does not take into account the overall picture of the association. For example, if the reserve specialist said the asphalt has one year of remaining life, the roof should be replaced in two years, and the siding has 3 years before replacement, the community would initially asphalt, then re-roof, and follow up with the siding project. By implementing this type of accounting-driven project plan, this community would spend more money in the long run and risk voiding warranties than if they were to have looked at the overall picture. Construction experts know that in order to complete a siding job, part of the roof may need to come off which voids the roof warranty, if the roof project is completed first. Furthermore, if you complete the asphalt project initially, as stated in the reserve study, followed by roofing and siding, asphalt will be torn up and its useful life will shorten. This scenario is just one example of what can happen if you don’t develop a smart project plan. Everything is connected and when communities take this into account they can save money. This type of plan can be achieved between collaboration with experts, detail, and common sense.
Tip#2: Examine the Impact of Water Management Practices on Reserve Components
Water isn’t the first thing to come to mind when thinking about the reserve study, but it should because the impact of water-related costs on building components directly correlates with water management practices. Water usually brings to mind positive connotations; but when it comes to communities and building components, water can be one of the most destructive forces to the well-being of its building components. Water and water-related costs for are usually the single largest line item in the budget. If you take the indirect costs like the impact of continual water runoff onto asphalt surfaces or the effects of inefficient sprinklers hitting the wood fencing of a twenty year old community, the costs can be staggering – not to mention the dry rot or termite damage that can be caused by over watering. With this mind, it is critical to take a closer look at the water usage practices and develop a strategy that takes into account both irrigation management and long term cost savings of landscape conversion projects when evaluating the reserve study. By taking a look at both the water management practices and its impact on the building components the community can shed light on numerous ways to save money on both a monthly and long-term basis.
Tip#3: Bringing Experts Together – Collaboration is Key
How many community managers know how to use the “cc” function on email? I would say most, if not all; and if not, it should be learned. In today’s marketplace, communities demand more information and they demand it now. Everything moves faster and so should the reserve study. In order to speed up efforts, introductions should be made so the experts that work for the communities can add qualitative value to the reserve study. For example, if a community has just completed a large reconstruction project that included a construction management company overseeing the project, it would be beneficial for the community to have the feedback incorporated into the reserve study. Or if a community with lots of deferred maintenance is in the process of establishing the need for a loan and/or special assessment to pay for a reconstruction project, it would be beneficial for the banker and reserve specialist to collaborate and perform a preliminary post-construction study to observe the impact of having work performed. Collaboration is key, and managers can save time and take some of the work off their shoulders by making these introductions and allowing their vendors to work together to solve the problems facing the community.
The reserve study is a good place to start for community managers looking to save money. Communities are required to have it completed on an annual basis now to meet the reserve summary disclosure statute; the concern now becomes how the community utilizes it. The reserve study serves as a gauge estimating the communities’ well-being and future project requirements. If you develop a smart project plan, examine the impact of water and its effects on your building components, and allow your vendors to collaborate with one another, this gauge can save communities money and its management team time in the process.
Damian Esparza is Founder of SmartProperty.com. The company provides construction consulting and software through its reserve management program enabling communities to save money by better budgeting expenses, tracking maintenance needs, scheduling improvements, and managing projects. The company combines technology with construction expertise to develop a “real world” working application of the reserve study.