Self-management after using management company

Started by JeffreyB5 • 13 replies • 1796 views

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JeffreyB5 (Louisiana)
Posts: 9

Posted:

I am on the BOD for a subdivision that currently has less than 200 homes. When finished, there will be right at 400 homes. The developer just turned control over to the board earlier this year, and we are starting to make some changes for the better.

One thing that we are exploring is terminating our property management company and self-managing. As a board, we are having a tough time justifying the amount of money we spend each month on the management company. We also feel that we are doing 90% of the work ourselves, and that the management company actually delays progress rather than moving it along.

We know it will not be easy, but we are up for the task. We have already had a few residents volunteer to assist with some of the administrative work that will be required.

With that being said, does anyone else that has done in the past have any tips for us? Anything that we should do in advance or request from the management company in advance? Lastly, how much notice should we give the management company?

Thanks!

TimB4 (Tennessee)
Posts: 21,059

Posted:

The two biggest tasks will be:

1) Collecting, tracking, depositing assessments
2) Covenant enforcements

However, you can (as we have done in the past) hire independent contractors to take care of those tasks. We utilized a bookkeeper in the past for collecting, tracking and depositing assessments. The Bookkeeper would also make initial notification of late or short payments. This was often someone from within the Association (vs. professional).

We, once, utilized an independent contractor for covenant enforcement. That caused more problems then it solved. We now use a committee of members who will not go looking for violations (except once a year when they do an annual inspection) but will respond to any complaint of a potential violation. This has worked well for us.

We are 130 lots and have been self managed from initial turnover (30+ years now).

KerryL1 (California)
Posts: 14,550

Posted:

Welcome to HOATalk, Jeffrey. One of the first things to do is to make sure that your governing documents, probably your covenants (aka, CC&Rs; declaration), permit your HOA to hire a manager as a direct employee, OR whether
you solely want to to manage the HOA by the Board.

Our CC&Rs permit neither.

One thing to take into account is whether your HOA is complex, i.e., lots of amenities, different levels of ownership with different privileges.,etc. OR clean cut: a few amenities, all owners are billed the same.

BillH10 (Texas)
Posts: 1,217

Posted:

Jeffrey

What common area amenities does your association own? If you have a pool, spa, clubhouse, tennis courts, etc., are the volunteers prepared for telephone calls at all hours of the day and night regard disputes, noise, Marco Polo for hours on end, access issues, broken glass in the pool area, furniture in the pool, and emergencies? If you allow private events in the clubhouse, again, is someone prepared to handle the scheduling, pre and post event inspections, dispute resolutions, etc.

I believe a group of volunteers can manage the finances, collections, late notices, and other administrative items. Hiring a bookkeeper would be wise. Depending on the common area amenities, and other responsibilities, such as exterior maintenance of the properties, self management can work very well. However . . .

I recommend you put out bids to other management companies. Specify the level of service(s) you wish to have provided. Your management company works for you and should facilitate, not hinder, what you wish to accomplish.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By BillH10 on 08/31/2015 3:32 AM
Jeffrey

What common area amenities does your association own? If you have a pool, spa, clubhouse, tennis courts, etc., are the volunteers prepared for telephone calls at all hours of the day and night regard disputes, noise, Marco Polo for hours on end, access issues, broken glass in the pool area, furniture in the pool, and emergencies? If you allow private events in the clubhouse, again, is someone prepared to handle the scheduling, pre and post event inspections, dispute resolutions, etc.

I believe a group of volunteers can manage the finances, collections, late notices, and other administrative items. Hiring a bookkeeper would be wise. Depending on the common area amenities, and other responsibilities, such as exterior maintenance of the properties, self management can work very well. However . . .

I recommend you put out bids to other management companies. Specify the level of service(s) you wish to have provided. Your management company works for you and should facilitate, not hinder, what you wish to accomplish.

Heed this sound advice. The more amenities your association has the more time consuming self management can be.

CyrstalB (Maryland)
Posts: 457

Posted:

We are very happy with our going to self management, and Tim is correct in the two biggest tasks. Take the contract from your MC and list out all the tasks necessary. From there you will see what has to be done and what the day to day tasks are and what the president's responsibilities will be and who or how it will be delegated.

In the process you should consider the future board members and how easy it is to move them into the same "process" that you have set up. An example would be the mailbox/address for the HOA, you would want a PO box so that as the board changes, the address does not have to. Another is HOA ledger the treasurer takes care of. They may want some fancy software to track it etc, but if the next treasurer is not software savvy, (meaning they can figure it out easy enough), then you have a potential problem.

here is an email address if you would like to talk further, [email protected]
we are so glad we did it though because as you said, they made us do all the work and when the shot hit the fan over something, we were left hanging out to dry. But we are small with almost zero amenities. If we had a pool or trash service etc, I am not sure we would be as happy to do it.

The other thing to consider is what will be done with the extra money you will be saving. We are not supposed to make a profit, outside of the reserves build up of cash.

In the end we hired an assistance to take the day to day off the board who takes care of the board ,keeps them in step with the CCR's etc., does the mailings, letter writing etc. It seems to be working well! Good Luck!

JonD1
Posts: 2,350

Posted:

Two considerations. I would collect copies of all important documents, records, and items in the possession of the current MC beforehand. Once they get wind you are planning to dump them in some cases their levels of cooperation dwindle. Bank records, banks account access, contracts, CC payment history, taxes, audit, warranties, building product information whatever they have you should collect.

As to notification that would depend on the current contract. Do you have to give them notice? Is there a termination clause? What are the requirements to terminate? With cause? Without cause? The last thing you need is a battle over breach of contract.

As to self management. 400 homes is a rather big property. The amenities are another consideration. Day to day just what will. Need to be handled and by whom. With a newer property hopefully less issues as the property ages more time and effort likely needed.

There is a learning curve to operating an HOA A-Z. Records, collections, enforcement, maintenance, services, sounds routine but without the right people it becomes a chore. And there is burnout and turnover among board members and volunteers.

The cost for an MC is an expense for a service to the property. You pay a landscaper, you pay a person to maintain the pool, you pay someone to do taxes,
audits, tree work etc. An MC is another expense. To assume or expect a small group to extend the efforts to perform those duties can become problematic.

If the decision is to self manage be prepared to handle more than you now expect. After a while it just might be the shine comes off the apple as the costing costs while a small group assumes responsibility.

I would solicite bids for MC services use their proposals to gain an idea of just what they offer and the prices they charge. This might open your eyes to what is needed and give you some numbers to compare to your current MC costs.

RogerB (Colorado)
Posts: 5,067

Posted:

JeffryB5, Good Luck. Be ready for lots of additional time spent and the related burnout.
For self management make sure to considered the additional liability and risk involved. Make sure your Board members thoroughly KNOW the state and federal laws, Declaration, Bylaws, and Rules. Otherwise, one law suit could more than offset any savings from self management. Also, make very sure that each Board member, the Board, committee members, and the Association are adequately protected against suits.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Sound advice from other posters.

Having changed management companies 4 times in last 6 years, I'll add this.

No matter what we did to try to avoid it, we lost 3 months of productivity from the old MC and we lost another 3 months getting the new MC up to speed. So net result is 6 months of sub-standard performance. HO complaints went up dramatically in those 6 mo windows.

Each MC has its own unique systems and no HOA is a pure vanilla match to that system. Some promises don't come true. Some things that you get currently could disappear or not work the way you like after the change.

I think it's important to consider current performance and cost separately. First question is whether the current MC is getting the job done to your satisfaction. If yes, be careful about greener pastures.

Second question is what percentage of your budget is going to your MC? If it's in the range of 8-12%, you're probably doing just fine. If there are on-site personnel, probably more.

BTW, the reason we changed so many times is that we decided to self-manage some activities but not others. Took us several times to get a good fit, and we knew exactly what we wanted.

All volunteers with no actual experience. Proceed with caution.

Sikubali jukumu. Read all posts at your own risk.

RogerB (Colorado)
Posts: 5,067

Posted:

http://www.jconline.com/story/news/2015/08/29/lawsuit-hoa-discriminated-disabled/71401198/

This is a link to the article on the home page of Community123.com which I just read after making my post below. It deals with the Fair Housing Act. Our management company dealt with just a week ago for a disabled person who owns a home in a subdivion we manage. In Colorado we must know the federal fair housing act and the Colorado fair housing act when considering requests which are applicable under the fair housing act.

This is one example, which many Board members of a self managed HOA, do not consider amd do not how to properly handle when presented at a Board meeting.

JeffreyB5 (Louisiana)
Posts: 9

Posted:

Thanks so much everyone for all of the advice!

Thankfully, we really do not have any amenities such as a pool or clubhouse. We just have lots of common space that must be maintained.

JeanI (Louisiana)
Posts: 112

Posted:

Since you do not have any amenities, your biggest expense will be landscaping. Also you should hire someone outside the community to keep the financial books. send out the dues notices and do the banking. To insure safety of funds, you should require more than one signature on all checks. You may want to sit down with the developer and ask him to transfer all legal documents to the new Board e.g. Articles, Bylaws and restrictions. With four hundred homes (potentially) a Board of five should be adequate for self-management. You should obtain insurance (liability, officers and directors, etc) Good Luck. Jean

GlenL (Ohio)
Posts: 5,491

Posted:

Jeffrey, whatever your Board decides, remember that apathy is one of the biggest complaints we see here and all of those gung-ho volunteers have a way of fading away. That said I'll repost one of the better posts on the subject from the early, early days of HOATalk. I believe the posted worked for a MC but that doesn't make his points any less valid.

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

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By RogerB on 08/31/2015 7:19 AM
http://www.jconline.com/story/news/2015/08/29/lawsuit-hoa-discriminated-disabled/71401198/

This is a link to the article on the home page of Community123.com which I just read after making my post below. It deals with the Fair Housing Act. Our management company dealt with just a week ago for a disabled person who owns a home in a subdivision we manage. In Colorado we must know the federal fair housing act and the Colorado fair housing act when considering requests which are applicable under the fair housing act.

This is one example, which many Board members of a self managed HOA, do not consider and do not how to properly handle when presented at a Board meeting.

Roger,

For those not familiar with the story, an HOA in Indiana learned that a member had sold their home to a non-profit group that assists the disabled. The group planned to house three unrelated disabled adults in the home. The HOA warned the non-profit group that their proposed use of the home was a violation of the covenants. The non-profit backed out of the sale and the home was sold to someone else at a lower price. The non-profit is now suing the HOA for discrimination against the disabled and the former homeowner is suing the HOA for interfering in the sale of the home.

The HOA at the center of this controversy was not flying blind; they actually had an attorney advising them. The letters came not from the board but from their attorney. Perhaps the stupidest part of this is that the attorney seized onto a provision of the CC&R's requiring that all homes must be constructed as single-family homes and twisted it to mean that each home had to be occupied by a single family, apparently implying that three unrelated people do not constitute a single family.

In this day and age the meaning of the word "family" is not what it might have once been. Ward, June, Wally, and the Beaver were a paradigm example of a single family. But is a single mother with her children a family? Would the Brady Bunch be considered a single family? (Half the children were not biologically related to the other half plus they had a maid who was not related to any of them.) Can a single person lawfully occupy a single-family residence? Does this HOA intend to do DNA testing to verify that all occupants have a family relationship with everyone else in each house?

While this particular board has gotten itself into some hot water by following really bad advice from a not-too-bright attorney, I do not think it is fair to lump this board in with those who are entirely self-managed. This board rightly sought and received advice from their attorney; the problem was that the advice was really faulty.

BTW, this case is still pending in Federal District Court but the HOA is highly unlikely to come out on top.

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