Finding The Proper Reserve Fund Study Provider Doesn't Have To Be Challenging
In order to get the right Reserve Fund Study it is important to understand what you want out of it. Boards should use the study as a guide for planning. In order to get a study that you as the board can use, it is important to find the right provider. Products vary from provider to provider. Providers have different funding philosophies as well as financial planning ideas. Questions you should ask providers when getting a proposal are:
1. Do you incorporate construction inflation?
Some providers do not use construction inflation. What happens with this is that the roof stays the same price now as when it requires replacement in 10 years. Is this reasonable? Construction inflation rates can vary and are just best guesses in most cases. History on the increase of costs over the past years should be used to gauge what construction inflation rates are, however it is hard to determine a construction boom – where supply and demand would cause prices to escalate dramatically.
2. Do you incorporate a contingency and a safety margin?
Contingencies allow for small errors in expected costs. Some providers use an amount of 2% - 5% of the annual replacement costs for a contingency amount. Safety margin amounts are useful in a buffer for the replacement of components that are not visible for inspection (underground services). Some providers incorporate funds for unforeseen replacements. This has you saving for items that may never require replacement.
3. What are the qualifications of the person doing the study?
There are a few organizations that offer certification to people who perform Reserve Fund Studies. One such accreditation is the CRP from The Real Estate Institute of Canada.
Is certification required? The act states that a qualified person must do the study. A qualified person is someone who has the knowledge and experience in respect to depreciating property, the operation and maintenance of the property, and cost associated with replacement of the common property. The Act does not say that you must have an engineering company perform the study or be certified through any institution. Property Managers, Accountants, Real Estate Agents, and Adjusters bring their own unique experience to the development of a Reserve Fund Study.
When hiring a company to perform your Reserve Fund Study, find out who in the company is completing the work.
4. What level of customization is the Provider willing to provide?
Some providers will NOT phase component replacement, some providers phase everything. What is reasonable for your corporation?
5. How many funding options will be provided?
Will the provider supply you with only one option for the required funding? Will it be a mathematical solution that does not take into consideration any of the social factors?
6. What funding philosophy do you use?
Some providers still use a funding philosophy that incorporates a short fall amount. This is called equity replacement – you put in what you use up, and need to catch up if you are behind. Most providers use a reasonable and sufficient funding philosophy – you rob Peter to pay Paul and make sure that the funds are in the account to cover the cost of replacement as it occurs.
7. How long will it take once awarded?
Do you need your study within 30 days of award? Good luck. Most providers have a waiting list of at least a couple of months. Any study that is required generally sooner than 60 days will cost you more. Plan in advance and ask for proposals at least 6 months prior to when you need your study done.
8. Will you provide a sample study for the board to review to ensure that the document is usable for their purposes?
Every provider should have a sample study for your review. Is this a document that the board can use? The board should use the Reserve Fund Study as a tool to plan annual maintenance and budget for replacement.
9. What is included in the proposal cost?
Is a meeting with the board included in the cost of the Reserve Fund study? Or is this an extra? Is the option for attending an AGM included?
10. Cost?
Cost should not always be the driving factor in determining which provider you go with. The most expensive is not always the best and the cheapest is not always the worst. Always ask for references.
The answers to these questions will assist you in determining which provider will be the best fit with your needs.
Full Study vs. Update
The condominium property act states: At the conclusion of 5 years from the day that the most recent reserve fund plan was approved, the corporation must, in accordance with the same procedures, requirements and restrictions to which section 23 is subject,
- carry out a reserve fund study
- prepare a reserve fund report,
- approve a reserve fund plan, and
- provide to the owners for the owners’ information copies of the approved reserve fund plan referred to in clause (c) prior to collection of any funds for the purposes of those matters dealt with in the reserve fund report…
The concept of a Five Year “UPDATE” is that you have the same provider supply you with your new Reserve Fund Study. This provider would not have to quantify the common property components (count and measure). However, site inspection to review the condition of the components is mandatory. The corporation would receive a complete new study.
This article has been written by Sharon Bigelow.
Sharon is a Bigelow is a Reserve Fund Study Consultant in Edmonton, AB, Canada. You may contact Sharon at Phone: 780-965-0965
