Q: "What's the difference between a Reserve Study and Inspection?" A: Reserve Studies consist of financial notes to ...
Q: "What's the difference between a Reserve Study and Inspection?"
A: Reserve Studies consist of financial notes to plan for product replacement. Inspections are actual conditions assessments on your building that check for wear and tear, leaks, and other potential damage. The industry sometimes uses these terms interchangeably, but they are two different things.
Major differences between Reserve Studies and Inspections include:
A Reserve Study (AKA Capital Replacement Plan) is a financial modeling tool to save money for future building component replacements. They typically include large items such as roof, siding, windows, paint, deck membranes, etc.
Usually, you’ll have 12-20 line items you are saving for, all with different “timers” and “amounts” with the intention of having the money in that line item by that date to perform the work so that you don’t need to assess or raise the funds at that time. You are saving for a future cost that you know will occur because you understand that buildings age over time and their components will not last indefinitely.
A Reserve Study is based on 2 estimates of each building component:
The main purpose of a Reserve Study is to estimate the reserve funds that will be needed for replacement and repair of your building components in the future. For example, estimating how much money will be needed (and when) for a roof replacement so you don’t get hit with major roof failure and have to scramble to come up with the money to fix it in an emergency situation.
Companies that specialize in Reserve Studies are more like accountants than contractors, so they are using rule of thumb, Google search, or cost estimating tables as opposed to actual costs and actual conditions.
Remaining useful life is somewhat of a guess if you haven’t had an actual inspection. You need an experienced impartial party (not a selling party) to tell you that.
Actual costs, especially in the Pacific Northwest in a real estate and construction boom, have already exceeded most cost table estimates. Actual inflation rates in the past year have exceeded historical norms.
We all know stories of buildings, roofs, windows, you name it-- not lasting as long as intended. A roof may be sold to last 25 years, but it only lasts 22. As a result, the Reserve model is 3 years of “savings” too short.
On the other hand, at 25 years old, maybe the roof still has another few years of life left. You don’t have to replace it just because the Reserve Study says you do.
As consultants, we get lots of calls that say, “We have to replace the roof because our Reserve Study says so.” ....or do you? An on-site inspection may reveal more useful life.
If the Reserve Study Specialist comes to the site, they are only performing a surface-level inspection. They don’t really know the conditions underneath the component, so they don’t factor in damage or defects.
Without “walking the roof” and “probing the seams” and checking for interior and exterior stains or visual clues, you won’t find damage or soft spots that could be indicators of failure. Without an invasive inspection, you won’t be able to find defects in the system or other damage for proper repair allowances. This will get you into surprises when the time for replacement comes and you discover more damage.
A few other things that have messed up the Reserve Study models lately:
*When a manufacturer goes out of business, it makes it tough to get warranty follow-up, matching components for replacement and repair, and general manufacturer support for a typical project or reserve study.
What does all of this mean? In the end, Reserve Studies are a financial tool that helps you budget and plan to get as close as you can to have the money you need, when you need it. They are great, but they are not a complete picture.
Remember that a Reserve Study is a series of line items rolling into one big bucket, or pool, of Reserves. Chances are, not everything will need to be replaced all at once. If you need a little extra for the roof or windows, don’t be afraid to use some funds from the reserve pool and adjust those line items in the next reserve study to get caught back up (pending reserve rules and governing documents).
So how much is enough to consider yourself properly funded? This is a business decision based on risk and your HOA Board’s comfort level. 75% of the estimated cost is a good rule of thumb, but 90% is better. The more you have, the less surprised you will be and the smaller the assessment (if any) will be needed to pay for the project. Some Boards we’ve worked with had enough in their Reserves to just write a check for their repairs. Most Boards we work with are underfunded and need a loan to do the work when necessary. Be like the first Board.
Remember, whatever changes or withdrawals you make from your Reserve, it is important to convey them to your Reserve Study Specialist.
A visual inspection is non-invasive observation, testing, and analysis of your building’s health from an expert in building envelope systems. You should have annual checkups from a building inspector to make sure your building doesn’t have any unforeseen problems and to ensure your Reserve Study includes the full picture of building health.
The results of your annual visual inspection will determine whether an invasive inspection is needed.
An invasive inspection consists of targeted openings to determine extent and severity of damage. Invasive inspections are only performed on an as-needed basis. Visual inspections should be done annually.
Download the Reserve Study or Inspection Guide to share with your Board
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