How to choose a Reserve Fund Study/Depreciation Report Provider

1. Determine the portion of the firm’s overall business is dedicated to reserve fund study preparation.

It is important ascertain how much time the firm spends focussing on the provision of a high quality product for their clients. If reserve fund studies account for a large percentage of a firm’s income, then they are reliant on that income and tend to stay current on developments in the industry and strive to produce a better product.

It is also important to determine the reason for offering this service, does their reserve fund study business generate a viable income stream or merely a loss leader in an attempt to develop other, more profitable consulting work?

At Delta Appraisal our sole focus is providing Reserve Fund Studies in Alberta and Depreciation Reports in BC, simply put - it’s all we do.

2. How long has the firm providing services been providing Reserve Fund Studies?

When selecting a provider to complete your Reserve Fund Study you should consider the experience of the provider. How long has the company been providing reserve fund study reports?

We have well over twenty years of experience within the real estate industry, including mortgage financing, property management and real estate appraisal. Delta Appraisal Corporation is celebrating our eighth year of business in 2015.

3. The Alberta Condominium Property Act and British Columbia Strata Property Act do not require specific qualifications of the individual performing the study.

Not all designations are created equally. Some may be obtained on the basis of some previous experience, along with writing a single examination, while another can be completed with no prior reserve fund study experience and as little as 4 days of classroom training.

Producing a reserve fund study requires more than just technical proficiency in assessing issues related to building construction. It requires significant knowledge on the effects of preventive maintenance on the lifespan of equipment and building and an understanding the likelihood of repairs or replacement based on previous decisions of completing or deferring repairs or replacement.

Furthermore, it’s important to possess the financial acumen to reasonably assess inflation rates, future returns on investment and how the cost of living affects reserve fund performance. A good reserve fund study also requires a strong report writing ability beyond simply filing out information in a software template.

We believe it’s beneficial that your provider have formal education and training in the provision of Reserve Fund Studies and Depreciation Reports. We would suggest as a minimum requirement that your provider have at least one or more of the following designations. This list is taken from The Ontario Condominium Property Act which indicates that the following are qualified to complete reserve fund studies within Ontario:

Designated professional under the Ontario Act includes:

  • Certified Reserve Planners (CRP),
  • Accredited Appraiser Canadian Institute (AACI),
  • Professional Engineers (P.Eng.),
  • Architects (Arch.)
  • Certified Engineering Technologists (CET),
  • Bachelor of Technology with the Architecture option (B.Tech. (Arch)) or building science option,
  • Professional Quantity Surveyors (PQS),
  • Architectural Technologists & Registered Building Technologist (MAATO),

At Delta Appraisal, Ernie Paustian has both the CRP and AACI designations indicated above. Not only do we take pride in the designations we currently hold, we are constantly in the process of improving our industry knowledge through continuing education and volunteering with industry governance.

4. Ensure that your provider has adequate insurance coverage.

The Condominium Act does not have a requirement for reserve fund planners to carry insurance. A request for proof of insurance is a good course of practise.

Each of the reserve fund planners at Delta Appraisal carries $2 million E&O insurance coverage. Delta Appraisal Corporation also maintains $2 million commercial general liability insurance and WCB coverage for the corporation principals.

5. Have the potential planner provide a list of properties completed recently.

This requirement will help ensure that the planner has worked on buildings of a similar nature to your Corporation. If the planner has focussed on high end condominiums, not-for-profit, or industrial, then they may not be suitable for your Corporation.

We have completed studies on a wide range of properties throughout Alberta and British Columbia. A small sample of previously completed properties can easily be found here

We would also be pleased to provide a sample report on request.

6. Insure that the person with the appropriate designation will in fact be performing your study

Often times, a Corporation hires an “Engineering Firm” or an “Architectural Firm” or an “Appraisal Firm” to complete a reserve fund study. However, the designated professional who attends and writes the reserve fund study is a different designated professional than expected.

It is recommended to request a brief CV outlining the professional accreditation of the individual who will perform the reserve fund study.

Delta Appraisal Corporation provides this information within all of our proposals and a minimum of one Certified Reserve Planner completes the site inspection and report.

7. What happens after the draft Reserve Fund Study report is presented to the property manager and the Board of Directors?

Typically the Board and Property Manager will have a set period of time to review and forward any questions or typographical corrections to the Reserve Planner. The final report is then issued.

It’s a bit of a misconception that Board Members are required to “approve” the study and have a final say on what is or isn’t included in the reserve fund study report. The assets of the corporation and common property components requiring replacement or major repair are required to be included in the study.

The Reserve Fund Planner might be able to spread major expenditures over several years or defer non-essential esthetic expenditures, components may not be removed from the study at the request of the Board.

While every effort is made to accommodate requests, at Delta Appraisal we adhere to the requirements of the Alberta Condominium Property Act and British Columbia Strata Property Act.

8. Memberships & Industry Involvement

The planner should be invested in the various industry institutes and organizations and be actively involved. It is important to remain current with changes in the industry as well as the legal and legislative and technical updates that occur.

Delta Appraisal is a member of:

  • Alberta Condominium Managers Association (Associate Member) ,
  • Condominium Home-owners Association of BC (Business Member),
    • Ernie Paustian is a member of:

      • Real Estate Institute of Canada
      • Appraisal Institute of Canada
      • International Association of Certified Home Inspectors

      Current Board Positions:

      • Appraisal Institute of Canada - Committee's (Professional Practice) and (Finance and Audit), Director (National Board), Director (Provincial Board), Treasurer (Edmonton Member Liaison Committee)
      • Real Estate Institute of Canada - Edmonton Chapter

9. Which funding method does your firm use and why?

There are various funding methods that are accepted for Reserve Fund Studies. The first method is a pure cash flow method which ensures that the reserve fund has enough funds to pay for components when they are expected to fail and that the reserve fund balance is never lower than zero.

This method is also known as the Baseline Funding Model and relies on an ideal world where everything fails exactly when it is supposed to. However, quite often a component will fail before it is supposed to, which when used with the baseline funding method increases the chance of a special levy. We believe that this method is best used for timeshare properties, where there isn’t the need to accumulate a significant amount in the reserve fund as contributions are spread over thousands of owners lessening the severity of special levies.

The Benchmark Deficiency Analysis is a great tool for providing a point-in-time snapshot on the condition of components within a condominium complex. With the Component Method, the idea is to eventually achieve a fully funded reserve fund, where all of the accumulated depreciation is accounted for.

Every year as each component wears, the condominium corporation puts aside an amount in the reserve fund to cover the depreciation. With this method, funds are specific to each component. If funds are needed for the roof, theoretically they come only from the roof account, not the window fund or from any other component. Although it sounds like a good idea, it's extremely difficult to make a reasonable business case for a fully funded model in the vast majority of situations. Quite often we have seen that there is a good possibility for a fully funded reserve fund model to provide an over-funded reserve fund.

Somewhere in the middle, are pooled funding models with the goal of maintaining an adequate reserve fund (adequately funded). With an adequately funded model, there is enough money in the reserve fund to pay for the components that require replacement--when they are expected to require replacement--along with an adequate and reasonably based safety cushion for when the unexpected happens. It’s been our experience that an adequately funded model provides a balanced approach and works well in most situations.

Ultimately there isn't one funding model that works best for every situation and this is why the funding model should be tailored to the individual Condominium Corporation. Based on a sensitivity analysis, Delta Appraisal Corporation will choose the funding model that is best suited to the individual condominium corporation. Our goal is to help your condominium corporation achieve an optimal funding level that minimizes the potential for a special assessment, along with balancing current and future reserve fund contributions.

10. How much will the study cost?

Price is what you pay. Value is what you get. — Warren Buffet

No one wants to spend more than is necessary, and we realize that some condominium corporations are always going to choose the lowest bidder.

Cost is a sensitive issue and for some corporations, choice is based solely on cost. Although cost is important, it should probably be the last consideration on who you choose. There should be a significant time commitment involved in properly completing the Reserve Fund Study process and most often the old adage of you get what you pay for applies. If the fee being charged is too low you should ask if steps in the process are being skipped, is a sufficient amount of due diligence being completed or does your provider simply not have enough experience and training to properly complete your report?

Perhaps a more important question that should be asked is - what `value` does the condominium corporation receive for the funds expended? We have the technical knowledge and experience to complete almost all reserve fund study assignments at what we believe to be a reasonable cost.