Self Managed vs Management Company

Started by TomD8 • 6 replies • 3753 views

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TomD8 (California)
Posts: 1

Posted:

I'm a real estate appraiser and we do a lot of condos, and homes that are both self managed,and managed by an outside management company.

The majority of places that have management companies, are underfunded, overpriced, and suffer from varying levels of deferred maintenance. A management companies job is to make money for themselves, and it does so by tacking on a lot of extra fees, or getting the board to pass a lot of rules and regulations to assess fines on the residents.

They start out by making themselves indispensable to the board. the board then gets lazy, and gets to be dependent on the management company. in order for the management company to make more money they get the board to be their enforcers, and pass a lot of unecessary rules and regulations to raise revenues, further lining their pockets.

The board no longer runs the management company. The management company is now in charge, and you will see a lot of maintenance that will go to their preferred contractors, and you will be paying 2 and 3 times more then you should for work being done.The prefered contractors cut corners to make money for themselves. The average home lasts 100 years, the average condo lasts 60 years. The loser always winds up being the homeowner.

When they finally go through all your reserve money, they will have the board (the enforcers)attach special assessments on the homeowners, and continue looting your community. If any of this sounds familiar, get rid of your board, and management company. I have seen this happen time and time again, and I am a big fan of self management, for this very reason.

If you are a large association hire your own manager, staff, gardners, and they will answer directly to the board. It is a very simple fix.

The boards do have a fiduciary duty to look out for your best interest, hold their feet to the fire and make sure they do their jobs, and not fall asleep on you. If not, you can bet what I just described is either happeneing to you, or will happen.

There is a built in conflict of interest having a managment company run your association. A lot of these commmunities are getting older, and the majority of associations don't have the money to make the repairs, they should but the managemnet company and boards have been squandering the money. This is going to start becoming a huge issue for associations in the not too distant future.

My advice to you is get invloved, and start asking them the tough questions.Your CCR's recommend the board runs the place themselves, but there is a clause that they can hire a management company. Often they fall asleep and let the management company take over, and that my friends is a direct violation of the CCR's. The boards main responsibilty is to association (that's you), to maintain the reserves, and maintenance of all common interest areas.

GlenL (Ohio)
Posts: 5,491

Posted:

You make some fair points and there are some excellently run self-managed HOA's of all sizes but the key is having and keeping a pool of volunteers big enough so it doesn't come down to one or two individuals trying to do it all. Then you get the same things you are warning about. I do not work for a MC nor have I ever and I have no affiliation to one. This is a post from the early days of the forum with what I consider to be a well reasoned counter-point, the poster I suspect did work for a MC.

Quote:

Posted By RobertL3 on 01/05/2006 1:01 PM
Self management can be a costly mistake for homeowner Associations. Volunteers often lack the experience to effectively take on the duties of Association management; collecting dues, paying bills, handling maintenance, record keeping, and rules enforcement.

A much more beneficial and sustainable situation is one in which service to the community does not diminish the volunteer's ability to enjoy living in their community. The best way to take pressure off your volunteer Board is to hire a professional to manage the day-to-day affairs of the association. Start by considering the four reasons why you might want to hire a manager:

Reason 1: Time

It takes time for volunteer board members to run their association. On any given day these volunteers might be responding to homeowner calls, arranging maintenance appointments for various everyday repairs, writing enforcement letters, dealing with the grounds contractor, posting assessment payments and preparing financial statements, and consulting with the association attorney on collections and other legal matters. If this sounds like a full time job, you might want to let your homeowners be homeowners and hire an experienced agent to perform these duties.

Reason 2: Knowledge

In addition to technical specifications and various questions of law, finance, and governance, you need to have more than a passing familiarity with local, state, and federal laws that apply to everyday workings of your community. Yours would not be the first board to feel overwhelmed by the sheer volume of knowledge it must possess. Good professional managers bring a wealth of knowledge and experience to the table, making them a valuable resource for the board.

Reason 3: Continuity

Board members might come and go, but a manager can offer a common thread that links one administration to the next. Why does this matter? Think about the importance of continuity when it comes to record keeping, budgeting, dealings with contractors, suppliers, and professional service providers, and even the relationships with your residents.

Reason 4: Convenience

The board should be a decision-making body, but too often the day-to-day distractions of educating residents and attempting to meet their expectations can pull managing board members away from the big picture. Professional management can provide an administrative buffer, giving your residents the attention they deserve and freeing the board to focus on those decisions that affect the long-term viability of the community.

Professional property managers bring a wealth of experience and knowledge to the table that can end up saving homeowners thousands in unplanned expenses and lost property value at a cost to each homeowner of just pennies a day. (If it sounds like a plug, it is. Full disclosure requires that I admit to being a professional property manager who once took my own community down the self-managed route. ;)

Experience with insurance, contractors, maintenance, enforcement, and legal issues can save an inexperienced volunteer hundreds of hours of research. Professional property managers can keep issues of assessment billing and rules enforcement from becoming “personal”. Finally, a well run, professionally managed Association can retain its attractiveness to potential buyers, resulting in higher property values.

While it is true that homeowner volunteers can perform some of the functions of a professional property manager, it is also true that volunteers often lack the experience to effectively take on the duties of Association management; collecting dues, paying bills, handling maintenance, record keeping, and rules enforcement. A professional manager can help your Association avoid costly mistakes.

There is also the issue of fairness and risk. Association management is a mandated function under most Association CC&Rs. Asking a single member to provided mandated services free of charge places an unequal burden and costs on that member (fairness) while the costs of errors and omissions on the part of that volunteer are borne by all (risk).

When you consider the potential costs to the Association of poor or inconsistent management, financial mismanagement, poor record keeping, inadequate reserves or insurance, inadequate maintenance, volunteer burnout, inconsistent rules enforcement, and falling property values then the advantages and true value of professional management become more and more apparent.

This is not to say that self-management does not work. I headed up a Board that successfully managed a single family association. But it was a LOT OF WORK to do the job right. There are thousands of associations across the country that successfully self manage. The question any Board needs to ask itself is, are the costs worth the benefits? If the answer is yes, then by all means, go for it. In many smaller and single family associations without many amenities, self management is the only thing that makes sense. Understanding the pitfalls will hopefully allow you to make the best decision for your community.

Studies show that 5 out of 4 people have problems with fractions

MatthewW4 (Arizona)
Posts: 500

Posted:

Tom,

Great insight into the problems with management companies.

One of the issues I see with some HOA's and nearly all condos is that there is a segment of home buyers who want to own a home without actually having do any work on their homes. The same buyers who want no involvement with their homes are not likely to want much involvement with their associations and management companies. Since the board membership is almost universally drawn from the pool of owners, non-involved owners will become non-involved board members too eager to pass the job on to a management company.

My wife and I house-sat my brother-in-law's condo for over two years. The complex has 11 units, about half rentals. Even though we were not owners my wife and I were invited to attend two annual meetings while we were there. The only other attendee the first year was the president; the second year one other owner made it to the meeting.

Because no one wants to be involved, a management company handles everything. At one point the management company introduced parking decals and threatened to tow away cars that lacked decals. Those of us who lived there had no real problem even though parking was tight. This was, of course, a pretext for a towing company to haul off cars and hold them hostage. The financials were a nightmare, with no money in reserves. At one point the management company levied a special assessment just to pay the insurance premium.

Tom, I think you scored a bulls-eye with your comments about management companies.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Our CC&R's have it so if we did disband as a HOA, We had to turn over to a Management company. We could no longer be self managed. So the owners knew that we were better off running the place ourselves.

Remember a HOA is a NON profit corporation in most cases. That means it must spend as much as it collects on what it's operation costs are. It is ONLY funded by it's members FOR it's members. Your board are VOLUNTEERS and receive NO compensation. Matter of fact it is a bad idea to compensate or allow those to skip paying dues for service.

We were self managed and had a bookeeper for the books. She was also a member so that helped. Our board approved things and enforced the rules without fines. We also pursued debt. Our ONLY legal responsibility in our documents was to provide lawncare. That was it. It is best to check your own documents to define the HOA's responsibilities. You may be surprised.

Management companies I do not believe victimize HOA's. It is a two way street there. Since HOA's are run by those who ONLY qualification is to be an owner to be on the board, they tend to defer to "Experts". Which not knowing any better or being lazy, can develop a poor management/HOA situation. It is something I hope we help educate people on when coming to this site.

Former HOA President

GnomeX (Washington)
Posts: 253

Posted:

The problem with self managed is this. We had a single office manager for over 15 years. She was terminated and we went to self management all by volunteers and Board members. I have been doing this for 3 years. What happens is if you can even get volunteers, they often are absolutely clueless on what needs to be done. So Board members like myself are actually having to spend more time just training any volunteers. In some cases volunteers can actually cause SERIOUS FINANCIAL HARM. We had a board around 8 years ago use volunteers to re-roof our Clubhouse overseen by a general contractor that lives here. Volunteers were used to save on the labor costs of the roof. They installed it improperly, even with oversight of what was thought was a capable construction contractor, and now just after 8 years the Clubhouse has serious water damage and a mold problem. Now it needs to be re-roofed again and the water damage repaired.

In the case of Board members its the same thing. A lot of Board members come on and have absolutely no idea on what to do so it creates an undue burden on one or two capable Board members that end up having to do literally everything.

We recently had a President that even refused to write up agendas and run meetings. He said he had no experience and did not even want to learn how. He also had no idea of Robert's Rules. So who was writing the agendas and running the meetings? The Treasurer. Same thing with the Secretary who was writing the meeting minutes. We went a whole year last year where the Secretary did not even get around to doing annual meeting minutes from the prior year. Who ended up writing the annual meeting minutes for that year? The Treasurer.

I won't even go into everything else concerning the actual running of the corporation. All tasks fell on the lap of just one or two capable people as the other "volunteers" are often big on "bright ideas" but lacking on actual involvement to carry them out or worse brains needed to actually get anything done.

Self managed CAN work. But only if you have enough volunteers that are ACTUALLY WILLING and most importantly have the education and smarts CAPABLE to do take on the job. If you do not have that, you will find yourself in a situation far worse than having a management company.

There is no nirvana. There are no simply solutions. The grass is always greener on the other side... Until you actually get there...

RogerB (Colorado)
Posts: 5,067

Posted:

Tom,
I believe your criticisms are actually related to the Board of Directors - not the management company. The Board hires the management company through a management agreement and monitors their activity. As far as funding, the Board (or when required the members of the association) set the annual assessments and any special assessments - not the manager. The Board is responsible and can get lasy or can be incompetent; and often give too much authority to a manager. There are good and bad Boards; good and bad professional managers; and usually apathetic members of an association. Any of which may lead to the problems you have observed.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By RogerB on 08/25/2013 5:36 PM
Tom,
I believe your criticisms are actually related to the Board of Directors - not the management company. The Board hires the management company through a management agreement and monitors their activity. As far as funding, the Board (or when required the members of the association) set the annual assessments and any special assessments - not the manager. The Board is responsible and can get lasy or can be incompetent; and often give too much authority to a manager. There are good and bad Boards; good and bad professional managers; and usually apathetic members of an association. Any of which may lead to the problems you have observed.

I agree. The root issue BOD oversight.

There is not always a black and white issue about how many units/homes dictating a management company or not. The issue is more the complexity of the association.

My association is 120 standalone homes with no amenities and little common areas. It is quite easy to self manage, especially with some book keeping help.

A 120 unit high rise building with amenities and large common areas like lobby's, halls, elevators, underground garage, pool, central heating/cooling, shared roofs, etc. are more then likely to complex not to be professionally managed.

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