By Justin T. Foy, SBSA, Inc.
National reserve study standards define reserve components according to four criteria. A component must:
- Be the responsibility of the association.
- Have a limited useful life.
- Have a predictable remaining life.
- Exceed a minimum cost threshold.
These four criteria are the building blocks necessary to develop an accurate, reliable, and repeatable list of components necessary for long term community planning purposes. What to do with this list is where many associations find themselves at a crossroads.
A typical community association has 25-35 reserve components. Small communities may have only a couple components, while large communities with amenities such as golf courses, restaurants, and recreation centers may have hundreds. Regardless of community size, the following five items typically have the largest impact on long term financial planning:
- Roof system
- Exterior façade
- Concrete flatwork
- Asphalt paving
Our research of ten randomly selected and recently completed Colorado reserve studies shows how significant these components are. Analyzing the projected expenses of the above five components over the next 30 years shows that they consume about 61% of the necessary reserve funds for the average community.
In analyzing a few of the individual communities, we found the following:
- Community 1: A mid-rise community containing 12 units constructed in the mid-2000s. Common components include interior hallways, lobby, and landscaped and irrigated areas. 66-percent of all expenses for the community can be attributed to the five major components.
- Community 2: A single family home community constructed in the mid-2000s containing 517 single family homes. Common community components include clubhouse, pool, large fountain, playgrounds, and community fencing. 19-percent of all expenses for the community can be attributed to the five major components.
- Community 3: A two-story, four-building community containing 32 units constructed in the early 1980s. Common components include privacy fencing and landscaped and irrigated areas. 77-percent of the community expenses can be attributed to the five major components.
- Community 4: A one- and two-story, 11-building community containing 30 units constructed in the mid-1990s. Common components include a clubhouse with gathering rooms, commercial kitchen, fitness area, guest suite, children’s room, HVAC equipment for the clubhouse, and landscaped and irrigated areas. 85-percent of the community expenses can be attributed to the five major components.
Errors with future planning for these five items will have a disproportionately significant effect on overall reserve fund needs. To properly “sweat the big stuff,” communities should plan for these five major items appropriately by ensuring the accuracy of the quantity and cost estimates assigned to these components.
Associations should ensure the accuracy by soliciting reserve studies from providers who have firsthand knowledge of the local construction environment for the communities they serve. Instead of looking up unit costs in a book or just googling it, a good reserve study provider should constantly be coordinating with general and specialized sub-contractors that provide roof, façade, deck, asphalt, and concrete services. By updating and citing their cost resources in the studies they provide, reserve study providers improve the accuracy of the costs assigned to reserve components.
Reserve study providers should also conduct quantity measurements of the site utilizing appropriate methods. Measurements should be completed first from As-Built drawings, if available. When As-Builts are not available, quantity estimation should still be completed utilizing field measurements and aerial image measurements. Associations should also be cautious of reserve studies that provide measurements of components as “1 unit” with no definition of quantity. These “1 unit” measurements often end up allocating a lump sum price to a component replacement, which can result in either a large surplus or deficit in the community’s largest impact items due to inaccuracy. The worst part of the “1 unit” measurement is that it is impossible to verify the true quantity.
Reserve study providers that work with both general contractors and associations understand the effect of accurate measurements and unit costs. Select a reserve study provider who can assist in guiding your community through your reserve planning so you don’t have to Sweat the Big Stuff alone.
Justin Foy is a Senior Vice President and Reserve Specialist with SBSA. Justin has over 18 years of experience in engineering management and 15 years of experience providing Reserve Studies. Justin and his team are one portion of SBSA’s staff of engineers and architects that work with communities throughout building and component lifecycle.