A Reserve Study Mistake to Avoid!

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Many times in a Reserve Study you will see multiple assets grouped together, like all the roofs on all buildings. They have the same Useful Life (UL) and Remaining Useful Life (RUL). In a recent Reserve Study, I finally “split” out one building from the rest, because the roof had failed and been replaced. It now had a different RUL than the others. You will often see other similar assets “grouped” together in a Reserve Study, like different pieces of furniture in a clubhouse (barstools, chairs, tables, sofa, etc.). It is appropriate to replace them at the same time for a consistent remodel of the area. Rather than take up space and confuse the reader with multiple different Reserve Components they would have to wade through, if they have the same UL and the same RUL and can be described similarly, they should be grouped together.

But we recently updated a Reserve Study, prepared by another company, where we found some very inappropriately grouped components. An entire recreation building had been described as one component: roofing, exterior painting, interior painting, HVAC, kitchen, bathroom, carpet, furniture. One component. You hopefully can see the problem. Those components have very different UL and RUL expectations. Grouping them together was simply an inappropriate, time-saving shortcut on the part of the provider.

I would suggest there were two mistakes made. The Reserve Study provider took a shortcut, grouping together items with long UL expectations (roofing) that fail due to exposure to weather, with medium UL expectation components that fail due to usage (HVAC), with shorter life components that fail due to being outdated aesthetically (interior assets). Then the customer failed to hold them to doing a “quality job”.

A Reserve Study provider is not above being questioned. If it doesn’t make sense, ask for clarification. And if it doesn’t give you the guidance you’ll need to be prepared for one future expenditure, ask them to split the component out for the different expenditures.