How Much Will a Reserve Study Cost Our Association?
This is often one of the first questions a board asks when they are presented with the topic of reserve studies. As boards begin to engage with reserve study providers, odds are that most receive, at a minimum, three bids to conduct a reserve study, all of which present a different cost for a variety of reasons.
Similarly, when you complete a home remodeling project, the quotes you’ll receive are dependent on many factors, such as the quality of materials, types of finishes used, the complexity of the project, and the experience and expertise of the contractor doing the work. Each quote you receive for a reserve study will also vary based on factors like project scope, experience of the firm conducting the study, and the level of service provided.
Price is important to associations when evaluating any purchase, but it should be weighed against the benefits each option will provide you. While on the surface all reserve studies seem equal, a firm understanding of each option will help you better discern why each solution is valued differently. It is imperative to know of the differences between bids to ensure you select the solution that is best suited to the needs of your board and residents.
What Impacts the Cost of a Reserve Study?
Similar to the example of completing a home remodeling project, there are many factors that result in a reserve study costing as little as $1,000 or as much as $7,500 or more. From the scope of work and the level of service provided to the qualifications of the reserve study specialist and fee structures, each of these variables influences the cost of the reserve study. Let’s take a closer look at 8 variables that impact price.
- Types of Reserve Studies
- Levels of Reserve Studies
- Scope of Work
- Fee Structures
- Level of Engagement
- Cost to Maintain Your Study
Types of Reserve Studies
Boards have two options, to do a reserve study themselves (in-house) or to hire a firm that conducts professional reserve studies. The cost of an in-house study is measured by the amount of time it takes to complete the study, whereas there is a monetary cost to hiring a firm to complete the reserve study.
Doing an in-house study is time intensive. Assuming you have a grasp on the process, one can expect to invest, on average, 20 to 40 hours to complete the work themselves. Boards can opt to purchase DIY reserve study software for a nominal fee to help guide the development of an in-house study, whereas hiring a firm comes with a higher cost. In hiring an outside firm, the board’s time investment is greatly reduced. And, the board has the flexibility to choose a firm and solution that will best meet the needs of their community.
Levels of Reserve Studies
Professional reserve studies come in many shapes, some of which follow industry standards and others that do not. Community Associations Institute’s (CAI) National Reserve Study Standards outline the four types of reserve studies most common to the industry, each of which has a very specific approach to being completed. A set framework for each type of study guarantees a minimum level of service, regardless of which firm you choose to work with. In our experience, most professional reserve study firms are committed to providing solutions within these guidelines. A study that complies with the Standards is typically more costly than one that does not. A study that complies with The Standards also ensures that the individual conducting the study meets specific educational and experience requirements.
Qualifications for conducting a reserve study can be grouped into two broad categories; 1) the firm’s qualifications and 2) the individual’s qualifications and experience.
- The Firm: While many firms specialize in conducting reserve studies, they are not the only type of organizations to offer these services. Some full-service engineering firms, accountants, and more, offer reserve studies. The type of firm is indicative of its areas of expertise. For example, firms that specialize in reserve studies often employ teams that are well versed in conducting life cycle cost analyses and financial modeling, whereas full-service engineering firms often employ teams with very specialized (i.e. design, construction, systems, infrastructure, etc.) areas of expertise. A firm’s area of expertise will influence the cost of services provided.
- The Individual: Individuals conducting a reserve study may or may not have professional credentials. This is often influenced by whether or not their firm is committed to CAI’s National Reserve Study Standards or other similar industry standards. Firms who are, often employ reserve specialists (RS), professional reserve analysts (PRA) and/or licensed professional engineers (PE). Individuals with a RS or PRA designation are required to complete a specific number of reserve studies as a prerequisite, and commit to the highest level of ethical and professional standards when conducting a study. As such, hiring and retaining accredited professionals influences a firm’s fee structure.
Scope of Work
The scope of work pertains to the components or property assets to be included in the study, inspection methodology, and back office support.
- Scope of Work: No two properties are the same. High-rise condominiums and homeowner associations maintain very different components. Even similar types of properties are unique as a result of their size, age, style, and building materials used. A smaller homeowners association might maintain an entry monument whereas a large-scale homeowners association might maintain miles of streets, clubhouses, pools and other amenities. Because of this, the number of hours needed to assess each component varies. While the components to be inspected should be consistent between reserve study providers, the scope of work often has the biggest impact on overall cost.
- Inspection Methodology: Each firm likely spends a different amount of time on site. Do they inspect a sampling of each component or do they inspect one or two areas of each? Do they personally take measurements and verify quantities of each component or do they utilize contractor documents to quantify each component? The methods used impacts the time needed to complete the physical inspection.
- Back Office Support: Some firms have no back office support and others have a team behind the individual conducting the reserve study. Following the physical inspection, life cycle cost analyses have to be completed for each component and a recommended funding plan prepared. Some firms utilize the individual who completed the physical inspection to also complete the back office work, whereas some firms utilize support staff under their direct supervision. In some cases, firms utilize third parties. Each of these approaches impacts cost.
The quality and detail of each report varies by provider. Regardless of the firm, a reserve study includes a schedule of capital expenditures and a recommended funding plan to offset the expenses. Firms that align with CAI’s National Reserve Study Standards go a step further by disclosing a list of long-lived assets as well as disclosing the association’s current maintenance practices related to each component. Some firms provide additional detail such as documentation of conditions through the use of photography and/or descriptive text, recommended preventative maintenance activities, recommendations for more cost effective replacement options, and opportunities for extending the life of each component.
Some firms offer additional tools to supplement the reserve study. Most common among them is a working Excel spreadsheet for adjusting the timing and costs of capital projects as well as annual funding levels. Others have cloud-based solutions that offer the same or similar functionality. Firms that offer these additional tools may include them in the cost of the reserve study itself, while others offer them as additional options available for purchase. Furthermore, some tools offer tiered levels of access. The number of user licenses and support provided varies by tier.
- Project-Based Fees: This fee structure is most common among reserve study firms. Project-based fees are determined by the necessary hours to complete the entirety of the project plus any expenses related to travel.
- Project-Based Fees + Travel: In some cases, firms might offer a project-based fee but bill you separately for expenses acquired. An association’s all in cost is not known until the travel expenses are incurred and billed to them.
- Not to Exceed: Firms might offer a “not to exceed” fee. While this is not as predictable as a project based fee, it does provide some level of certainty and protection for the association, with the possibility of the final fee being lower than what is agreed upon.
- Hourly Rate: Some firms charge an hourly rate. This is often the result of rates being dependent on the qualifications or credentials of the individual conducting the study. For example, a firm might commit a licensed professional engineer or a reserve specialist to a specific project but charge different rates for each.
- Tiered Pricing: Sometimes, firms will offer multiple service options. For example, a Level II Reserve Study Update With Site Visit and a Level III Reserve Study Update, each of which will be priced differently.
- Subscription Pricing: In the event an association elects to do an in-house study and purchases a software to support their efforts, there may be an annual licensing fee for creating and for accessing the study upon its completion.
Level of Engagement
The reserve study process is uncharted territory to some boards and very familiar to others. This can lead to different expectations when it comes to the engagement between the board and their chosen firm. Some boards like a short, direct and to the point process. Others like to be fully engaged with their reserve study specialist throughout the process as reserves can be a delicate and nuanced topic.
The level of engagement a reserve study firm provides directly correlates with cost. On one end of the spectrum, firms that keep client engagement to a minimum often present a lower fee. On the other hand, firms that are highly and continuously engaged with management and/or the board are oftentimes more costly.
It is also important to understand if and how your reserve study firm supports you following delivery of the reserve study report. Many firms offer one or multiple revisions to the original report, some of which include it in the cost of the initial reserve study and others who bill for this work at an hourly rate. Similarly, some firms will make themselves available to the board for a set period of time or indefinitely, which may be included at no additional cost or billed hourly depending on the firm.
Cost to Maintain Your Study
Understanding the factors that impact the cost of a reserve study will give you insight into the long-term cost of maintaining your reserve study. All reserve studies should be updated periodically and in many cases, the timeline is highly dependent on the most recent level of service and the quality of service provided.
Conducting an in-house study vs hiring a professional firm with the proper skills and expertise can impact the initial quality and accuracy of a reserve study. If an untrained eye doesn’t account for a major building component or life and valuation estimates are off target, the study will likely need to be updated more frequently to ensure the community is course correcting.
Lastly, while an association may not want to invest in a solution that includes a higher level of support, the tradeoff should be evaluated. Save money now with the prospect of paying more for additional support or invest in a solution that you know will be there for you in the future.
Community leaders are more budget conscious now than ever before. Increases in insurance premiums and rising costs of professional services, utility, labor, and materials, make a prudent approach to spending necessary. It is equally important to understand the implications of shopping solely based on price and the differences between services being offered. When you evaluate potential reserve study solutions (or any services for that matter), take the time to truly understand what impacts the price of the solutions offered, as only then can you choose the solution best fit for your community.
At Reserve Advisors, we understand the importance of being budget conscious, which is why our reserve study fees are project-based. All of our reserve studies, regardless of the study type, meet CAI’s National Reserve Study Standards and our process is tailored to your association’s specific needs. No hassle, no surprises, and a total commitment to supporting your community today, tomorrow, and beyond.