I’m going top break down the Good, Bad and Ugly of this DIY trend below…..
Many communities are already in fair to poor funding levels and are always seeking lower costs alternatives to their current services.
DIY is Fast
True, if all the components are already lined up for a person (assumed prior reserve study completed) to go in and update the costs figures and useful life’s of the component this will often be a faster option for a community than to hire a reserve study provider to complete an update.
DIY Allows “Tinkering”
The Association Board can often run different scenarios for budgeting purposes; an assessment here, a loan there, perhaps removal of a component or inclusion of others. These programs often allow an Association to change allocation amounts to the reserve account, change the costs figures, useful life’s, etc. These can all be helpful when handled in a correct and responsible way.
Accuracy & Reliability are Reduced
As stated above the “tinkering” allowed in these DIY programs means that anyone with access to it can change the information to whatever they would like and not necessary what is accurate, reliable or in the best interest of the community. It’s important to remember that all of these programs, from the basic Excel types to much fancier looking Cloud based programs are based on relatively simple math formulas so the information that comes out as a final product is only as good as the numbers inputted.
A person with limited or a marginal knowledge of building components/systems, project costs, inflation rates, useful life’s and remaining useful life’s may end up changing numbers supplied by a professional reserve study firm into very inaccurate information with a few clicks of a mouse. This has become extremely common with access to the internet and the cost figures supplied on various website (unfortunately these are almost always for single family residential cost figures rather than commercial cost figures and do not typically take into account removal and disposal costs).
I like to compare this to going to the barber and asking for the clippers to do a DIY haircut every few months. Even the best clippers money can buy will not get most people to jump in and tackle a DIY haircut. Most of us have been to a barber/salon hundreds or thousands of times but still do not feel comfortable cutting our own hair; yet this same person who doesn’t feel comfortable cutting their own hair often jumps into trying to manage hundreds, thousands or millions of dollars in expenses related to common area components. Just like a DIY haircut a DIY reserve study will usually get done… However, is it accurate? Is it I the best interest of the community?
DIY reserve study software also transfers the liability back to the Board and specifically that member who feels they have the expertise to complete the update. Over the years Boards have been generally trying to limit their liability after many instances of Board members making decisions that they felt were in the community’s best interest but often turned out not to be.
If a Reserve Study Company does a Full Level I Study but the Board then uses their DIY software to change items in the study on the updates who is liable if/when mistakes are discovered that result in a significant costs to the membership… Who is responsible in the barber shop when you cut your own hair using clippersn and happen to cut off a piece of your ear? These are great questions that do not have clear cut answers (pardon the pun). Typically these scenarios will end up in court and a judge will decide.
Disclosure Requirements Are Difficult to Meet
Washington State RCW’s are very specific to what needs to be included in annual Assessment & Reserve Funding Disclosure Forms to a community’s membership. When DIY software is utilized in “update” years are these requirements being met?
The concepts and formulas in a reserve study or disclosure document are not self-evident by any stretch. The concepts of Percent Funded, Fully Funded Balance, Baseline, Threshold, Statutory and Recommended Funding Plans, etc. are all examples of what the person completing these updates need to be familiar with. Additionally access to cost manuals, bids, regional cost multipliers, etc. would all be needed to complete an accurate update. While the software may appear to be simple for a DIY Reserve Study Update the concepts are not so much and will require a bit of education in respects to reserve study concepts and facilities repairs and maintenance costs. Does the Board member utilizing the DIY software have the time and drive to learn all this information? I know most of us do not have the time and drive to cut our own hair...
As more communities have attempted to complete updates with DIY software we have seen a rise in the number of calls requesting that we complete the Full Study and all future Updates due to inaccuracies and liability issues that have arisen from these DIY Reserve Study Software programs. The questions I usually have to stop and ask myself is - Didn’t we already try this? - Before the WA State RCW legislation was passed most communities were in a position of poor funding levels due to years of following inaccurate and/or misleading financial models that were typically created by well-meaning Board members. Aren’t we just taking a step back… this can be tempting especially when a Reserve Study Firm is selling you on this idea, but is it any different than what we already tried…
As with all products there is a place for DIY Reserve Study software but it really needs to be placed in the hands of a person very familiar with all the concepts, has the necessary tools and the willingness to carry the liability of the reserve study for the community. Additionally they really must have the drive to do the necessary research to find accurate cost figures, useful life information for components and all the while staying independent in their overall assessment of the components and funding models. We frequently see Boards remove or un-fund components in their DIY software only because they were causing problems for their long term budgeting goals.
As for DIY haircuts… I say leave that to the pros… Just a tip from someone who had to wear a hat every day for a month…
Written by Joel L Tax - Professional Reserve Analyst - 04/02/2016