So you’ve received your Reserve Study. You notice that the asphalt seal coat project, which the association just paid $30,000 to have done, shows a $20,000 estimated (current) cost in your Reserve Study. Or you notice that the paint project you just completed for $50,000 has an estimated $80,000 (current) cost in your Reserve Study. What is going on? Why would your Reserve Study professional show such different costs for an expense that just happened? Isn’t an “actual” expense a great benchmark to use for future planning?
Yes and no. Actual expenses at your association are typically great cost benchmarks. But just because the association paid $X for a project doesn’t mean that is a good cost to expect again in the future. In the case of the asphalt seal coat, we noted that there was significant damage (the association had waited years longer than they should have to perform this project), and a significant amount of the association’s recent $30,000 seal coat expense was actually crack sealing and repair work. If the project was done on schedule again in the future (as we recommend in the Reserve Study!), the association should not have to face the “extra” costs due to significant deterioration.
On the other hand, we see painting all the time among our client associations. In this case, we called the painter to find out why the paint cost seemed much lower than we would have estimated. In discussing the job with the painting company, we found that they had hit a flat spot in their painting schedule, and needed some work to keep their crews busy. So they underbid the project in order to get work just to keep their crews busy and employed. It was a “sweet deal” the association obtained, not something they should expect to receive in the future. Sometimes this is case when a boardmember has a relative or friend able to perform a favor for the association… work at a discount. The association can’t rely on having that special relationship again in the future. The association should wisely prepare to pay a reasonable “commercial cost” for such a project.
It’s never inappropriate to ask your Reserve Study professional why the costs estimated in your Reserve Study are different than the association’s actual experience in the matter. You may have stumbled upon a typographical or calculation error that needs to be fixed. Sometimes it is just that your recollection is of an expense five years ago, and there have been five years of inflation since that time. But in most cases you will hear there was a good reason why the estimate was different than the association’s actual experience.