If reserve studies and reserve study providers are not created equal, as the HOA Detective has asserted in a previous post, then how are you supposed to know whether your reserve study is a credible and reliable source of information?
In our 4/18/2015 post (https://hoadetective.com/2015/04/18/reserve-studies-are-not-created-equal/) we examined various elements of a credible reserve study, all of which have significant bearing on the quality of the reserve funding analysis. All of these principles require a certain amount of knowledge about reserve planning and the reserve study industry to determine their relative impact on the quality of any given reserve study.
At this point we have established eight core concepts that are critical to a comprehensive and reliable reserve funding analysis:
- Objectivity of the analyst
- Timeliness of the analysis
- The inclusion of a percent funded analysis in the reserve study
- The period of time covered by the analysis
- The level of detail contained in the analysis
- The accuracy of the analysis
- The completeness of the analysis
- The certification of the analyst
In addition to these concepts which are directly reflected in the content of a good reserve study, there is a less tangible element of a quality reserve study, which is the qualifications of the person or persons who prepared the reserve study. Suffice it to say that in this wild west industry of unregulated, self-credentialed reserve study practitioners, the educational and professional experience of the provider is indeed a critical element of a high-quality reserve study. So much so that it is deserving of an entire post devoted solely to the topic, which of course the HOA Detective will be happy to provide at a future date.
In the meantime we are going to spend the remainder of this post examining the certification process for reserve study practitioners, as it is arguably one of the easiest ways for the lay person to be led astray if they assume that any reserve study provider who possess one or both of the industry’s professional credentials is automatically qualified to perform a reserve study for all types of properties.
At the present time there are two organizations that offer a certification for reserve study practitioners. Both use criteria that is largely experienced-based for determining whether or not the applicant is qualified to receive the organization’s professional certification. Although the application for both certifications does require that the applicant list any educational accomplishments that might be deemed relevant, none of the educational curricula taught in schools today is specifically designed for the purpose of educating reserve study practitioners, at least so far as the HOA Detective has been able to determine..
The oldest and most recognized credential is the Reserve Specialist® certification (RS) offered by the Community Associations Institute (CAI). The second and more recent credential is the Professional Reserve Analyst certification (PRA) offered by the Association of Professional Reserve Analysts.
Both of these organizations have longstanding ties to the industry that serves the homeowners association (HOA) marketplace. In the case of the CAI, as a supposed outreach organization for homeowners who live in HOAs, although many would argue that the CAI is a defacto trade organization for the association management industry; and in the case of the APRA as the self-anointed worldwide trade organization for reserve study professionals.
What is important for the lay person to understand is that both of these credentials are based largely on unverified field experience and educational backgrounds which are only tangentially related to the reserve planning discipline. There is no requirement that field experience be documented or verified by any independent, third-party monitoring authority or government agency.
The educational requirements are somewhat far-ranging in that anyone with a four-year degree in construction management, architecture or engineering is automatically deemed to be suitably qualified as long as they also posses a certain level of field experience as a reserve study provider. Never mind that there is little, if any coursework directly related to any of these disciplines that is specifically designed to educate the student about long-term capital budgeting, reserve planning theory or finance.
The PRA certification offered by the APRA does include a continuing education requirement, but again, there is no college level curricula that the HOA Detective is aware of that is specifically designed for reserve study practitioners. Instead the APRA publishes a list of pre-approved “courses” that are offered free of charge through the website aecdaily.com.
The coursework consists of watching an online video and taking a “test” afterward…all for free! The PRA continuing education requirement mandates that four such courses must be taken each year, for a total of eight hours of CE credit. Once the CE requirement has been fulfilled, certificates of completion are submitted to the APRA along with an administrative fee of $199 and the annual renewal fee at which point the certification is ostensibly good for another year.
The pre-approved courses offered by aecdaily.com consist exclusively of construction and building maintenance topics, which the HOA Detective agrees are relevant to the work of reserve study practitioners, but it should be noted that none of the courses are related to topics having to do with the financial analysis or replacement cost estimating that are fundamental to the reserve planning and budgeting process.
Both the RS and the PRA certifications require that the applicant submit a list of reserve study projects that were completed under the applicant’s supervision as well as other information to establish that the applicant has a suitable level of experience. The RS applicant must submit a list of twenty-five projects that have been completed within the last three years; five client references and a sample of a reserve study prepared by the applicant.
PRA applicants must submit a list of fifty projects, three employment related references and three client references. A sample reserve study is not required as part of the PRA application. The CAI offers the RS certification to anyone who meets the requirements for certification, whether they choose to maintain a membership in the CAI or not. Whereas the APRA imposes the somewhat self-serving requirement that the PRA applicant must be an employee or under “exclusive contract” with a firm that is itself a dues-paying member of the APRA and that the APRA membership must be maintained in order for the PRA designation to remain in effect.
From a practical standpoint both of these certification processes would seem to be well-intentioned efforts to raise the bar of competence within the reserve study industry. Unfortunately neither really accomplishes the goal and the fact that there are two organizations that compete for supremacy as the “official” certification body only serves to undermine any meaningful effort to elevate the reserve planning discipline to the status of a truly professional endeavor.
What is needed for the industry to achieve legitimate professional recognition is a three part strategy consisting of education, testing and licensing. The educational component should include a combination of experience and a college level curricula that is offered by independent, third-party educational institutions, not by industry trade groups or insiders with potentially conflicting interests.
The testing process must be similarly detached from the industry. It should be administered by an independent testing agency under the supervision of a state-sanctioned organization that is empowered to issue a license in the same manner that real estate agents, contractors, engineers, architects, doctors and lawyers are licensed. To achieve a meaningful level of credibility the entire process of educating, testing and licensing of reserve study practitioners must remain free of industry control and while a certain degree of industry influence is to be expected, the licensing process must be independent of any trade group or professional organization.
Unfortunately, it is unlikely that any of this will occur, at least not in the foreseeable future, if for no other reason than the entire reserve study “industry” is comprised of no more than a few hundred practitioners at the very most and there simply isn’t any real motivation on the part of regulators to institute such measures. Instead the current fragmented industry environment is likely to continue, given the recent announcement of yet a third organization, the International Capital Budgeting Institute (ICBI) that has decided to enter the fray. As a result it would appear that a concerted, cooperative effort to raise the standards of the industry will not be forth-coming any time soon.
In the next installment of this series we will examine the ICBI and who is behind this latest entree on the reserve study scene.