Seven Common Mistakes to Avoid When Preparing for REAC Inspection
Chipping and peeling paint on a building's exterior. Loose wood siding. Exposed wiring. Rusted steps and railings. These were just some of the problems uncovered during the Real Estate Assessment Center's (REAC) inspection of a 77-unit Section 8 project. And after receiving low scores on two consecutive physical inspections, HUD terminated the owner's Section 8 payments.
The annual REAC inspection is a critical indicator of a federally assisted site's ability to maintain the physical standards established by HUD to ensure that residents are provided with decent, safe, and sanitary housing. Failing to take the inspections seriously can result in severe financial consequences.
And yet, so many Section 8 projects do not. While most see the value in compliance training for site staff on topics like income limits, setting rents, or eligibility requirements, many overlook the need to educate site management about the REAC inspection process and Uniform Physical Condition Standards (UPCS) inspection protocol. That can be a costly mistake.
“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,” says Michael Gantt, president, REACSolutions. “The staff may have spent significant money and time addressing the issues that 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.”
We asked Gantt and other leading REAC compliance experts to share their insights on some of the common mistakes that sites make when it comes to REAC inspections. The following are a few highlights, in no particular order.
Mistake #1: Not Providing Training Across Functions
Most properties neglect to assign top site management accountability for REAC training and follow-through at the site. “Probably the most important mistake that every company makes is training and preparing for the REAC inspection from the bottom up and expecting site staff to handle the inspection, rather than training from the top down, and having the executive or middle management understand and participate in decision making and follow-up,” Gantt says. He believes that every management company should develop an “internal REAC guru”—a manager who will be responsible for obtaining the necessary skills and knowledge to oversee the REAC inspection process.
“Someone from the corporate office needs to be involved in training for the REAC inspections, as well as on preparing appeals,” says Denise Murphy, principal, Murphy Consulting. Unfortunately, most sites send only their maintenance technician to the training, she adds.
“It takes a lot of study to master the underlying concepts of the REAC inspection,” explains Gantt. “To achieve excellent compliance and high scores, one must understand the scope of defects the inspector can cite, and more important, how the scoring system functions.”
Mistake #2: Not Prioritizing Staff Time and Efforts
The overall lack of knowledge about the REAC scoring system leads many sites to focus their efforts on fixing defects that may seem significant, but which turn out to have little or no effect on the total score, says Scott Precourt, president and CEO, U.S. Housing Consultants.
For instance, defects found in units score fewer points than items found in a building's systems area. “Solely focusing on the dwelling units would be ill-advised because that is not where you are going to fail your inspection,” Precourt says. “Each property is very different. You have to know the scoring model and understand how your particular site is being scored depending on how it is physically laid out.”
Gantt points out that some of the highest scoring items can be inexpensive to correct, while some of the most expensive repairs can have little effect on the score. “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,” he says.
To balance the scoring value of defects against the cost of repairs (in both time and money), Gantt offers this advice: “List the known defects in descending order of scoring impact, then compare 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 might suffice for now. Low-scoring, low-cost repairs come next. Low-scoring, high-cost items should be deferred until after the inspection, and assigned to the category of capital improvements rather than REAC priorities.”
Mistake #3: Not Allowing Enough Lead Time
Site managers often underestimate the amount of time that it is going to take them to prepare for a REAC inspection, says Trish Leonard, vice president and director of operations, Housing Management Resources. Often, during the pre-inspection, they will spend much of their time in a thorough examination of the first 25 percent of the units, and then realizing that they are out of time, give the last 75 percent a hasty review.
“You have to conduct a methodical inspection of 100 percent of the units a couple of months in advance,” she stresses, “especially on a property where there are concerns about being able to pass REAC.” She recommends scheduling the pre-inspection two months before you believe that you may have an inspection, based on the date of your last one. “Don't wait to prepare until they tell you that you're going to have an inspection,” she says.
Review your previous REAC inspection at least six months in advance so that you can start to plan ahead for long-lead items, such as repairing driveways, parking lots, or sidewalk cracks. “Properties spend an inordinate amount of time on certain items, and then they lose the points anyway,” she says. “The problem is, if you have 300 sidewalk cracks and you fill 185 of them, you will still lose the full amount of points for cracks. So if you're going to fix them, fix all of them or let them go.”
Mistake #4: Failing to Review Previous REAC Report
Although many sites overlook the importance of reviewing their previous inspection report, Leonard says that it's a critical first step in preparing for REAC. “Make sure that you understand where you lost points in the past, and where you are vulnerable,” she says. “If you don't have a REAC report on your own property, look at another one so you can understand, in general, where the most points are lost.”
A previous report can also provide invaluable insights into the scoring model for your project, says Precourt. Your last report will show you the possible number of points per inspectable area for your site, the maximum number of points per unit, and the number of points per deficiency. “The next inspection is based on the last report,” he says. “The scores are weighted per property; the last report is the only indicator of what the weighting percentages will be.”
Practical Pointer: Past REAC inspection reports are available to download online through HUD's Web-Access Secure System (WASS). “If you have a coordinator or user setup in the HUD Secure System, you have access at your fingertips to your prior REAC reports,” says WASS access expert Denise Murphy. “You can't make decisions based on the final REAC score alone; you need the full report. It's important to make the time to get set up for this crucial access.”
Mistake #5: Basing Current Inspection on Last One
Managers often go into a REAC inspection with a false sense of security, assuming that, if they did well on the last inspection, they're certain to do as well again. “It's a misconception that causes untold problems for people,” says Precourt. “They could have had an incompetent inspector before, and then get a competent one this time—and there's a mixture of both in the industry.”
Owners and managers expect the inspection to be “fair,” or to “make sense,” adds Gantt. But “it is a very subjective matter.”
Mistake #6: Spending Too Much Time on Units
Maintenance staff are often told to concentrate on fixing defects found in residents' units, yet that can cost a site valuable points. Defects in units can potentially affect only the people living in those units, so the scoring is lower, says Murphy, adding that anything that is in a common area has a higher points deduction because it has the capacity of affecting everyone at the site.
“The units account for 35 percent to 45 percent of the final score,” explains Gantt. “The site, exteriors, systems, and common areas account for 55 percent to 65 percent, yet many organizations don't even inspect these areas—they just inspect and prepare the units. Your 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 Housing Quality Standards (HQS) inspection. Each unit typically contributes only 1.6 to 2.6 points to the 100 points possible, unless the property has fewer than perhaps 50 units,” he says.
Mistake #7: Focusing on 'Bad Units'
Every site has them—households that, upon inspection, consistently display housekeeping issues, blocked egress, excessive garbage and debris, trip hazards, and the like. It seems practical to focus your efforts on these “bad units,” but it is a wasteful mistake, cautions Gantt. Why? Often, the units that look perfect have hidden issues that can be quickly fixed to save points, such as non-functioning range burners or an inoperable ground fault interrupter (GFI).
“When a distressed unit scores zero, you typically lose 1.6 to 2.6 points. 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,” he says. “You can't make a distressed unit perfect or improve its score greatly, but you can do a few quick and simple fixes in a good unit and save significant points very easily. When you concentrate on the good units, you can get through more units in less time, and make greater gains with far less expense.”
Perhaps the simplest of suggestions is that sites should be maintained to REAC standards year-round, rather than scrambling to make special preparations and hoping they will get an “easy inspector.” Ideally, according to Leonard, “properties should be able to prepare for REAC in a week. Keep in mind that this is based on a minimum standard to ensure that management is preserving the asset. But many managers don't take it seriously that they should be maintaining their site to this level all the time. And that is the biggest problem—they think that they can trick the inspector every couple of years.”
Additional REAC Resources Online
HUD's Real Estate Assessment Center (REAC): Provides useful documents, such as “Preparing for REAC Inspections,” the REAC Inspection Form, and more; http://www.hud.gov/offices/reac/products/prodpass.cfm.
Murphy Consulting: Online newsletters and articles; CD-ROMs on REAC processes are available for order (topics include “Preparing for REAC Inspections,” “Appealing a REAC Score,” and “Inside HUD Inspectors Training”); useful REAC links; http://www.MurphyConsultingSvs.com.
REACSolutions: Online REAC mini-manual; conference handouts, tip sheets, articles, spreadsheets, and REAC news; useful REAC links; http://www.reacsolutions.com.
U.S. Housing Consultants: Sample inspection and compliance review reports available for download; monthly newsletter; http://www.us-hc.com.
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