Tax Credit Housing Management Insider - one of the many great Vendome Publications - is running an article on Preparations for REAC Inspections in their February 2010 issue.

Susan Hash contacted us on behalf of TCHMI to discuss the REAC inspections, and we did the bulk of our interview by email.  She also spoke to a few of our esteemed colleagues: Denise Murphy of Murphy Consulting Services, Scott Precourt of US Housing Consultants, and Trish Leonard of Housing Resource Management, Inc.

With such a great group of contributors, Susan quickly had more information than she could fit into one article.  Having seen the rough draft, we can tell you that this is a very informative article, but it is the copyrighted property of TCHMI, so we can't republish it here at present.  We can share the full text of Michael's responses to Susan's questions, some of which just wouldn't fit into the TCHMI article.

Susan Hash: Thank you, Michael! Here are some of the questions I wanted to discuss with you:

No. 1 misconception that property owners/managers have about REAC inspections?

Michael Gantt: Boiling it down to one misconception is difficult.  I usually talk about ten or twelve related misconceptions, and it depends on what kind of properties they own or manage.

Probably the most important mistake that every company makes is training and preparing for the REAC inspection from the bottom up, expecting site staff to handle the inspection, rather than training from the top down, having the executive or middle management understand and participate in decision making and follow-up.  Every organization should develop an internal “REAC Guru.”  Until an internal Guru is developed, the company should develop a relationship with an external consultant who can fill this role very economically and effectively, while training a chosen manager to cultivate the necessary skills and knowledge.

As to misconceptions, my list of “mistakes everybody makes” includes expecting the inspection to be “fair,” or to “make sense.”  This is, of course, a very subjective matter.  Quite often, a property that looks excellent to someone who doesn’t understand the REAC inspection can score very low or even fail, due to just a few high scoring defects that the owner or manager didn’t even realize were classified as defects in the inspection protocol.  The organization may have spent significant money and time addressing issues they thought were important, only to find that on inspection day, the property is cited for issues they never expected, and which might have only cost a few dollars and a few hours to fix.

It takes a lot of study to master the underlying concepts of the REAC inspection.  In order to achieve excellent compliance and high scores, one must understand the scope of defects the inspector can cite and, more importantly how the scoring system functions.  There is no relationship between cost of repairs or how bad something looks and the scoring value.  Some of the highest scoring items can be very inexpensive to deal with, and some of the most expensive repairs have very little effect on the score.  Success on the inspection depends on careful inspection of the property, analysis of the scoring value of defects found, and then balancing the scoring value of defects against the cost of repairs in terms of both time and money.  If you cannot prioritize your efforts based on a firm knowledge of what is and is not a defect, and the scoring value of each defect, you’re spinning your wheels, wasting time and money, and risking a disaster on inspection day.  If you cannot create a list of every issue, in descending order of scoring impact, you have no idea of how to prioritize your efforts.

SH: Most common errors or oversights that property owners/managers make?

MG: The most common and most costly mistakes, in terms of wasting time and money, can be reduced to a few general categories.  Concentrating 100% of preparation efforts on the Units is a huge mistake, because the Units only account for 35% to 45% of the final score.  The Site, Exteriors, Systems, and Common Areas account for 55% to 65%, and many organizations don’t even inspect these areas – they just inspect and prepare the Units.  Efforts need to be properly balanced between all five “Inspectable Areas.”  Unless the property is a townhome community with hardly any Common Areas at all, the Units should be the last concern.  Individual Units do not pass or fail in the REAC inspection as they do in the HQS inspection.  Each Unit typically only contributes 1.6 to 2.6 points to the 100 points possible, unless the property has fewer than perhaps 50 Units.

Concentrating on “Bad Units” is also a very wasteful mistake.  Even a Unit that the manager or maintenance person thinks is “perfect,” because it is in good order, can have a few hidden issues like range burners not functioning or an inoperable GFI.  When a very distressed Unit scores zero, it means you lose 1.6 to 2.6 points, typically.  A Unit that looks perfect, at a glance, can lose the same 1.6 to 2.6 points due to something as simple and easy to fix as cleaning the stove burners and replacing a GFI.  You cannot make a distressed Unit perfect, and you cannot improve its score greatly, but you can do a few very quick and simple fixes in a “Good Unit” and save significant points very easily.  When you concentrate on “Good Units” you can get through far more Units in much less time, and you can make greater gains with far less expense.

Far too many owners and managers also concentrate on items that seem unfair instead of evaluating scoring value first.  It seems unfair that you get cited for a cable TV trip hazard in the Unit, but that has no scoring value what-so-ever.  There is no deduction from your score.  One Trip Hazard outdoors, on the sidewalk, is worth about 4.5 to 6 points, but Trip Hazards indoors have no scoring value.  It seems unfair that you are cited for a Call-for-Aid that the resident has tied up, but it is typically worth only about one tenth of a point.  While Smoke Detectors are an important, life saving feature, they have no scoring value at all.  Most companies still don’t realize that all the extra time they devote to smoke detectors, cable TV trip hazards, and emergency call devices prior to the inspection have little or no effect on the score.

SH: Pointers for conducting a pre-inspection (who to involve, how far in advance, followup?)

MG: Pre-inspections should be conducted by a very knowledgeable person with excellent observation skills.  Inspection results should be analyzed by someone who understands scoring.  A Regional Manager, or someone from central management who has responsibility at a portfolio or regional level should always be involved, because Site staff are not exposed to enough REAC inspections to ever gain a thorough understanding of the inspection or its consequences to the overall organization.  A pre-inspection should be done at least a month in advance of REAC, and someone above the property level should be involved in analysis of results, prioritizing efforts, and doing a progress inspection on major items.  If nobody in the organization has the observation skills and in depth knowledge of scoring and inspector behavior necessary to predict REAC results  – no internal “REAC Guru” - then the organization should develop a relationship with someone who does: a specialized consultant who can mentor a key Asset Manager, Regional Manager, or Director of Maintenance, and help them become the company’s REAC Guru.

SH: How should owners/managers prioritize key tasks/actions to focus on?

MG: Setting priorities is actually simple, once the organization acquires knowledge of the inspection protocol, of scoring value of defects, of inspector behavior, and of the appeals process.  One must start by knowing what defects exist, and the scoring value of each defect.  After that, it’s a simple matter of listing the known defects in descending order of scoring impact, then comparing scoring value to cost of repairs.  High scoring, low cost repairs should come first.  Just get them done, no questions.  High scoring, high cost repairs come next.  If repairs are too costly, determine whether some short term, temporary, minimum standard repair might suffice for now.  Low scoring but low cost repairs come next.  Low scoring but high cost items should be deferred until after the inspection, and assigned to the category of capital improvements rather than REAC priorities.

In doing very advanced preparation, one follows the same line of reasoning, substituting other factors for cost.  This becomes an exercise in comparing costs, risks and benefits. Compare the scoring value of known issues to the likelihood of unsuccessful repairs, and don’t start any impossible projects – concentrate on what can be accomplished rather than wasting time and money on issues that will not be resolved.  Compare the scoring value of known issues to expectations that the issue will or will not be cited.  There are issues that every inspector cites, and others that most inspectors don’t even realize they are supposed to cite.  This is one area where expert help makes a difference.  Compare the scoring value of issues to the likelihood of successful appeals.  If an issue is low scoring, and high cost, and you know you can win an appeal, don’t spend the money, prepare the appeal instead.

Readers can find more on the Vendome Publications at: http://www.vendomegrp.com

See the Tax Credit Housing Management Insider at: http://www.taxcredithousinginsider.com