Advice on searching for new HOA Management company

Great question. This came up recently for the municipality where I live. Also at a former HOA it became controversial. Some contracts contain what is known as "proprietary information." For examples of how several cities deal with this in Texas, see http://austintexas.gov/sites/default/files/files/Resource_Recovery/ConfidentialityInRFPs.pdf
. I believe the same issues are consistently arising nationwide, and laws and procedures similar to these Texas cities are in place. Exacting equity in bidding et cetera is becoming a big deal nationwide.

I think there are too many legal implications to provide any vendor's contract to other vendors during the bidding process. Granted HOA Members typically can obtain copies of vendor's contracts, pursuant to statute and CC&Rs. Then members end up doing pretty much what they want with them. Perhaps nationwide it will be common for HOA Boards to have the vendor redact proprietary information before providing a copy of a current contract to a member, under a records request.

I think condos vary too much to use a per unit formula.

I would not provide a copy of the budget.

I do recommend contracting a management company and not hiring employees to do the labor. If a condo or HOA hires employees, and down the line, the employees work performance starts degrading, under employment law they are hard to fire.

Maybe have each board member prepare a draft Request for Proposal (RFP); then compare to the current contract; then meet and decide which bullet points should go into the final RFP.

I am sorry the exact legal answer is so complicated. I imagine many condos are much more casual about this, with no adverse consequences.

John

If you go internet searching do not look for Property Management companies. Every real estate whatever advertises themselves as such.

1. Narrow your search down with HOA Management Companies.
2. First thing out of the barrel is ask for references from them for associations similar to your own.
3. Contact some local associations and ask who do they use and are they happy.

I will have more to say as the conversations go on, but dinner time now.
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I don't think you should show them the contract, even with the company name blacked out. I think the main thing you need to do is consider what they already do for you and what you'd like the ideal property management company to do for you (if there is such a thing). You might also think about what your current company is and isn't doing well and how you'd like to prevent problems in the future. This means you need to read the contract YOURSELF, perhaps comparing it with your documents - that's where the pricing starts. The more you want the company to do, the more it will cost, so you should ask how the price is set, as well as costs for additional services as needed.

As long as you're thinking about changing, you may as well give the current property manager a chance to negotiate if they want to keep your business. You don't have to tell them you're looking or who you're talking to, but if there have been issues, this is a good time to sit down and discuss all that with them and come up with a plan to fix them - with a deadline. If there's no improvement by that time (and be realistic with the time, depending on what needs to be fixed), you can proceed.

I think the most important thing to remember is that the property manager is in charge of the daily operations, but you and your colleagues (the board, that is) are responsible for the overall direction. That means you don't leave it to the property manager to make decisions that the BOARD is tasked to do. Some of those decisions may be difficult, but that's what you signed up for - someone has the be the adult and make the call. A big reason many associations run into trouble is that they get lazy and let the property manager do everything, including making all the decisions. A good property manager will let you know what your options are and then step back and let you debate. He or she shouldn't try to be an attorney, so don't ask him/her for legal advice - even if the answer is correct, you need to do your due diligence and ask the attorney. By the way, have the attorney review the contract before you sign.

You'll also need to ask about a transition plan and how long it will take to implement. Changing management companies doesn't happen overnight and when it's done, you need to be sure everything has been completed and all the books and records with your current company have been closed out and sent over to the new one.

Any prospective management company is going to ask to see your budget. It's a lot of work preparing a bid and if you can't afford even their minimum rate it's just a waste of everyone's time. And, you need to give the company a realistic view of what managing your property will entail.

I've worked for 4 management companies in the last 8 years and my experience is that in terms of what the company offers its clients for price and services, it's all pretty much the same. What matters is who your specific manager is. To that end, ask about their employee turnover (assume they will lie). Check GlassDoor or Indeed and see what former employees say or how often they post jobs. Try to meet the person who would be your manager. Make sure they have condo experience not just single family or apartments. Condos are a unique beast and often subject to an entirely different set of state laws than SFH.

We have learned from experience to ask to see information regarding the presence or absence of a reserve study and the percentage funded if there is one.

Our experience has been an association without a reserve study, or one which is wildly out of date, and/or with very low reserves, will be very difficult to manage as there will invariably be issues when funding is needed. A special assessment, or significant increases in assessments, are difficult for both the Board and management company as the need for additional funding, or reserve funding, is often contentious, filled with accusations, underlying lack of understanding, and unwillingness to listen.

In such situations we ask questions to gauge the mindset of the Board and the community to determine if the revenue from the business is worth the time and stress of dealing with a lack of funds for even common repairs.

As a result, we have modified out business plan and will decline to bid in some instances if the reserve funding situation does not meet our subjective or objective criteria.

I suggest you look at the reserve funding situation in your association and be up front regarding presentation of the information, steps being taken if necessary, etc.

Well John, it sounds like you are asking the right questions and are looking for good guidance. Good luck to you in your quest.

Almost 10 years ago, we made a decision to change management companies. We decided to include the entire community in the selection process.

The attached docs should be self explanatory (except for the stuff about a dual meeting which was due to a unique situation involving a conflict among Board members).

Each owner was given a grading chart (which I can't seem to locate now) where owners could give up to X points on each of the 8 criteria listed.

Those 8 criteria were the most important issues for our community at that time. If we did it again today, the criteria would be a little different because our needs and expectations have changed.

Our criteria might not suit your HOA, but maybe some of this can be useful.

Best of luck.

Based on what I read, what does the Board do?

As well as asking members of other HOAs, I suggest asking your HOA attorney for his or her recommendations. I'd bet your attorney knows which managers have good instincts and are most effective yet efficient.

John T,
As usual you are getting a lot of good advice here. The only thing that I will add is over the years I have learned that there are 2 types of Management Companies. The first type is Builder related PMCs They get their business by linking with builders and developers. They are brought in to help form the HOA and also run the HOA the way the builder can sell more properties. They are teammates with the builder. They like having 1 boss and that is the developer. When the development transitions to homeowner board they become hard to deal with and that is when most HOAs should thing about changing.

The other type is the Homeowner MC. They usually replace the first type of MC. They are used to transitioning from an existing MC to theirs. They also know that they have to work with Boards that in many cases have 5 different points of views. It is a much different beast than the first type. I am not saying this type of MC will solve all your problems because they probably won't. Typically all PMs are over worked and under paid IMO.

An important question to ask is how many other properties with your new manager have in their Portfolio? How many units are they responsible for? The number of different HOAs is also important since preparing for Board meetings is time consuming and they have more than 6 or 7 even if they are small and only have quarterly meetings it can eat up the time spent on your issues.

Last thing know and understand their transfer fees and compare with others. Some charge higher fees and every home that sells has to pay these fees and they are not negotiable.

My thoughts on each of your 3 questions:

1.) Is it permissible to provide prospective companies with our current contract? If so, should I black out the company name?
I think others have answered this sufficiently, but my 2 cents. Don't provide the contract. Instead, develop a specification of what exactly your HOA wants the MC to do and then supply the same spec to all interested MCs with the hope of receiving proposals that are somewhat comparable to each other.

2.) Is there any general rule that HOA management companies use to determine pricing? For example, is the price tied to a formula based on the number of units or a percentage of the annual fees?
In my experience, there's no formula. Each MC has their own sort of criteria that determines their pricing. Some will only "do it all". Others provide "a la carte" services where you can pick and choose what you want them to do. Some have a per lot price scheme. Others have pricing for certain numbers of lots.

3.) If they ask, should I provide them a copy of our budget?
If one of your goals with switching PMs is to save money, in my opinion it would be foolish to provide a copy of your budget. Providing that will reveal to them exactly what you pay your current MC. Even providing a synopsized budget that shows your expenses (minus MC expense), it would still be somewhat simple for them to figure out what you pay the current MC. Knowing # lots as well as current dues (avail on MLS for recent home sales) will allow them to figure approx. total income. If what you pay the MC isn't a consideration, then you could probably hand over a budget so they know what they are working with. All that said, an experienced MC with knowledge about a reserve study should understand quite well what they will be dealing with for your HOA in regard to expenses and thus income.