Reasonable Professional Management Company Cost as Percentage of Dues?

% of dues is not relative. The cost to perform the services is the issue. Bare bones MC costs will typically be a minimum of about $600 per month. Bare bones being dues collection, bill paying, attend the Annual Meeting to present financials and run BOD ELections, send violations letter when requested by the BOD, advise the BOD when asked, etc. Attending BOD meetings, inspecting the neighborhood, etc. will all be extra charges and I would consider doing away with these services. Let the BOD Members do inspections. Have the MC send Monthly Financial Reports to each BOD Member for their review. I see no reason for the MC to attend BOD Meetings.

Basically decide what services the MC is currently performing that you do not need. Then ask the MC to quote based on only what you need.

It's a common management company strategy to offer a low base rate and rack up the schedule A fees. You might want to look for a company that has an "all inclusive" fee structure.

Just for perspective, what you're paying is about what one of my former properties paid for management of 560 homes with a pool, multiple playgrounds, two ponds, entrance fountains, a walking trail, benches, and a park.

A management company is not going to provide a bid based on a percentage of expenses, but rather a cost per door. Based on 300 homes it could range anywhere from $8.00 to $15.00 per door.

Percentages of expense is the by-product of the services you need. In some budgets you could have the same $3400 cost, but only 5% of the budget. This would be a community of many amenities.

Thank you - this is very useful.

Totally agree on the base + fees. I don't necessarily have issue with that; I was just surprised when I saw how much it is. To be blunt, if the rate is typical (and it sounds like it is not), I can't imagine this is fiscally responsible on our behalf.

This gives me some good foundation for negotiations. I think they also know we're paying too much, as our direct manager has hinted that there is room for negotiation.

Again, thank you.

Our owners can only contact the management company concerning payments. Everything else goes to the BOD via our Email address and any Email sent to that address is sent automatically sent to each BOD Member.

John

How many vendors do you have? The utilities more or less run themselves, water, power, perhaps gas. Who is responsible for common area maintenance? What about other vendors of services, do you have contracts which must be managed, sent for bids upon renewal, etc? How is the association property and liability insurance, D&O insurance, and possibly WC handled?

What takes place in the MC CC&R compliance review? If out of compliance conditions are noted, does the MC write the letter or post card or a committee of owners? Who follows up, who moves the violation through the compliance process if it is not addressed by the owner.

You did not mention gates so I assume your Association is not gated and is on public streets. If that is not the case, there is another set of vendors who are involved.

My point is this: you listed some, but not all of the responsibilities commonly found in a contract to manage a SFR HOA. There are many more.

Someone suggested $8.00 to $15.00 a door, which is how some property management companies establish baseline monthly management fees. You seem to be paying at the high end of what I would consider the normal range to manage an Association such as yours but there are variables, such as those I mentioned above, which will influence the amount of time the property manager must spend each month on your account. Also, your Association may have a 'reputation' as being difficult to manage. Many are.

Do this: ask your management company to provide you a "Financials Only" quote and a list of the services to be provided. That should provide you insight into a reduced set of services. However, your Board or volunteers must step up and fill the void created if the PM no longer performs those tasks.

My other recommendation is you bid the management contract and, if you are in the DFW area, ask us to bid.

Thank you. I appreciate it.

Vendors: 2 - landscaping and porter. There's a small common area, plus a kind of woodland side to our main road that the landscapers mow back about 10' monthly. The porter changes out dog stations weekly. They handle paying the vendors. We bid out annually. Utilities: none. We have no amenities or anything, so no utilities. Insurance & audit/taxes: we bid out annually and pay by the service. I'm not sure what WC is. For services of bidding out any vendors, this is included but we probably bid vendors every other year.

CCR Compliance: the Board sets the 'interpretation' for enforcement and have set the violation path (within legal limits) - for example, internal hold -> courtesty notice -> pre-fine notice -> fine notice... The MC drives the property twice monthly, noting violators (homeowners can also notify MC, but they validate complaints). It's this drive that moves things through the process - in other words, if they notice a landscaping issue drive 1 (internal hold), and drive 2 they note a landscaping issue at the same address their system will send a courtesy notice, and so forth. The service is included in our base rate, but we are charged for each letter - this is part of our variable cost (note the cost I quoted is a net average, including variable).

We are public street and not gated. We are not in DFW

I appreciate the reply, but I'm pretty sure you've misunderstood my question. With our agreement, we have both base costs and incremental - as covered in our Addendum A and pricing lists. No problem with that at all.

Um... what?

I'm asking other HOAs what they pay, as a percentage of annual dues, for professional management... as a budget exercise. Whether they're getting full service or bare minimum... whether they have 100 doors or 1000.

To paint an extreme, I'm pretty sure everyone would agree that paying 110% is unsustainable, and that paying 2% may indicate excessive dues or opportunity for increased services.

I gave our circumstance to give background - I know I like some background or context - and, indeed, some people have offered additional insight. As a consequence of some of this, I've also disclosed that I think - from a purely budgetary perspective - we are paying more than we should. If the rest of the world comes back and says, "Gee, actually 40 - 60% seems spot-on" it might give me pause for thought. If everyone comes back and says, "all in, we pay 20 - 30%", this - too - gives me pause for thought.

This has nothing to do with management company running day-to-day (for which I fully agree), or us wishing to engage in a nickel-dime discussion (where did you get that)?

Again - I appreciate the answers, but I'd be more appreciative if they were related to my question somehow.

Thanks. I've no doubt you know what you're talking about. I do appreciate your reply attempts and wish you well.

Nope. You're still answering a question I didn't ask, and now implying I should've asked the question you choose to answer. While I appreciate it, I'm well-aware of what I asked and why. You're answering 'what is a reasonable fee for a management company to do these things?' That's an interesting question - but it's not what I asked. I'm asking about people's experience with their management fees from the perspective of their HOA budget/accrual income.

Since it seems a bit difficult, I'll make a bit of an imperfect but illustrative analogy:

Imagine I asked, "Dear People, what percentage of your household income gross do you pay for your housing?"

I might get answers like, "30%", or "10% but we bought two decades ago", or "50% but I don't earn a high income compared to my area's cost of living" and so on. I might even get some people who say "experts suggest 35% of gross income" or "the average in the US is 33.5%" or whatever. That's cool.

Now, you come along - well-meaning, I'm sure, and say:

'It depends upon where you live! People in more desirable areas will have higher rent or mortgage. Furthermore, certain features and amenities can really increase that - size, waterfront, downtown, walking distance to public transport. It's impossible to tell you what you can expect to pay without knowing these details. Plus, knowing your income would help me say how many dollars you can afford!"

While all of that is certainly true - it isn't what I asked. You're answering how much is 'fair' to pay. I asked how much of people's budget they're paying today. Two different - but related - data points.

You may argue my data point is irrelevant and I'm asking the wrong question. I assure you: I am not. I appreciate you trying to help - I sincerely do - and the info you've provided is interesting. It just isn't what I'm asking.

This was your question: What is a reasonable amount to pay for professional management services, as a percentage of dues? In other words, what is reasonable to target to budget, as a percentage of our dues?

You asked two questions, how much and what percentage. You will get answers all over the place. I gave you the how much, and the percentage doesn't come into play. Remember, I generally don't see an income/expense statement from the HOA as they don't want to show what they currently are paying. I can drop a price if I know how many homes sell in that community over a year.

Would you ask the same of a landscape company?

Your housing scenario, 2% goes to housing, bought 5 years ago, $500K. You would get answers all over the place.

But, so far, respondents have said, $15, $20, $25 per door, 6%, 7% and % of dues are not relative.

Nope - that's one question, phrased two ways for clarity. See, the 'how much...as a percentage' is one thing. Not two. I'm not sure why you're trying to explain to me what I meant by my question. I mean, that's weird, right?

"Would you ask the same of a landscape company?" No. But I might ask a company who does something similar to me, for whom landscaping is a major cost, how much they budget for that.

"Your housing scenario, 2% goes to housing, bought 5 years ago, $500K. You would get answers all over the place." Um.... what? The only way I get answers 'all over the place' is if people don't understand/answer the question... case in point, I suppose.

Again - this is the oddest forum exchange I think I've ever had. I appreciate your info - it's interesting. It just isn't my question, and you seem to really, really want my question to be something different. Sorry about that, but I think perhaps mine is not the question for you.

Thanks for the response (and correcting my typo - sometimes my fingers get away from me).

"That's why it would seem to me someone should have a sit down..." Yes. We're negotiating. We are reasonably confident we're paying more-than-is-typical. The reason for that is when I expressed surprise with our community manager, she indicated she thought we had 'plenty of room' when we renegotiated.

It's better to negotiate from a position of strength. Part of that strength is competitive offers - which we have. Unfortunately, our area's mgmt companies are seemingly 100% flat fee + variable charges. The way the variable charges are structured makes it difficult to do an apples-apples comparison. We have it narrowed down.

But that's all about the management side - in other words, as someone else keeps trying to morph the conversation into - what is reasonable for the management company to charge? I have no problem with that, but I'm also seeking the other side: the Board's fiduciary responsibility to the non-profit entity.

It is that for which I'm seeking input - quite literally, as a budget line item, how much proportionally - a percentage - is your management costs? It's an extremely relevant piece of information, especially for a non-profit. Sure - you'd expect smaller communities to have a higher percentage than large, and for more services/amenity management to have higher than not. I'll bet, if one did survey this, we'd find that 80+% of all answers fit into a small range.

To answer your questions specifically (as I tend to be a completist):

* Vendors: the Board hires them after examining at least three bids. I think I said this elsewhere, but our vendors mow and do light trash pickup monthly along a single 'common' area (more of a wooded side to the main thoroughfare into the neighborhood) and a second company services 6 dog stations weekly. No utilities, we haven't had a repair (to the dog stations) in years. We review the contracts about every other year. If we elect to rebid them out, the mgmt company collects at least 3 bids - a service we pay for incrementally. In addition, annually we have an accounting firm conduct and audit and prepare our taxes. I guess what I meant by 'trivial' should better be described as 'straightforward'.
* The last five years of charges are a bit misleading; we switched to this management company a year ago (and had to pursue legal action against our previous for breach of contract, involving a fair amount of money... but that's a different story)
* What cuts can be made: of course. In addition to cuts, part of the discussion will be what is included and what is incremental. Since that is highly specific for our situation and contract, it's difficult to pose to a forum for meaningful input.
* Can we cope with performing some drives ourselves? Our base cost is only $800/month and includes the two drives. I'm not certain this is where we're going to negotiate savings, even if we took some on ourselves.
* Set fee: that's one option we're going to consider. This is where percentage can have a useful input on budgeting. If I approach this from the position of 'we wish to pay X', I'd like X to be a rational offer - rational from many perspectives. I already know what they charge. I don't know what I'm willing to pay.
* Invoicing: included in our base of $800/month, and we invoice once per year. Similar to the other comment, I think we'll focus on the incremental charges as a source of savings.
* Legal referrals: this is something we can look at

Thanks SheliaH - I didn't realize you'd answered twice. Sorry, I would have given one response.

"It doesn't matter what my community pays compared to yours... you don't live in those communities..." I can't think of a more reductive and simplistic set of bad info. Sorry, SheliaH, but this sounds like something a salesperson would say to me as a diversion.

I have a fiduciary responsibility to my community to research and make the best, most informed decision. I agree that if someone says, "we pay $1 per door!" I probably don't have the entire context, and it's rarely a 1:1 comparison. However, such comparisons are informed.

There is such a thing as industry standards, 'reasonable and customary', etc. Management companies (note: I hope!) don't make things up out of thin air. The market informs pricing. However, in a case like this - as we're a Board of volunteers - we have a distinct disadvantage in comparison to the company. We simply don't know any benchmarks for services outside of our own history. Imagine making other significant purchases blind to things like typical costs, levels of service or quality, etc.

I find your suggestion odd, to say the least.

You're correct that the board should strive to get quality work at a competitive price, but I still say there's no point in asking what community X, Y or Z's percentage is because YOU.DON'T.LIVE.THERE. If you think you should pay less because community X pays 45%, for example, you still have to look at what's behind those numbers. They may not have amenities either, but more delinquencies that require more phone calls and letters. Or more common areas that require more landscaping maintenance. The community's age might also be a factor - community X could be 10 years younger than yours.

You've had this management company for only one year, so I can see where your property manager is coming from. Before you hired them, why didn't you or anyone else say something like "we're currently paying X% of our budget to the management company and would like to reduce that - how can you help?" If you'd done that a year ago, it would make sense for you to say the percentage is still too high, so let's revisit A, B, and C services to see what can be trimmed or eliminated.

I still say Bill had some good suggestions (called him Billie earlier - you're not the only one who can be all thumbs!) and JohnC77 also notes it would make more sense to ask a few HOAs in your community what they pay. But hey, you can take some, none or all of the suggestions you've received here. Good luck in whatever you choose to do.

So many questions! Thank you everyone who is taking time to reply. I'll try to consolidate some answers and comments into this one post.

Your base fee is $800 but you end up paying over $2500...
Yes. The main culprit is a combination of things: we pay for every mailing, including things like courtesy reminders prior to violation. We do have a high delinquency rate - about 22% - but we've always had that. The way our fee structure is, we pay incremental for quite a bit of things. This is a primary point of negotiation, of course.

There's no point in asking what community X,Y,Z percentage...
...ask a few HOA's in your community what they pay and how many doors...
...why didn't you or anyone else say something like "we're paying X% of our budget...
I'm kind of regretting that I included that this was part of research I'm doing ahead of contract negotiations. Everyone thinks that I am asking this as a point of negotiation. I am not.

I am asking as a matter of budgeting. For example, as a non-profit I would consider some important aspects before budgeting any expenditure: do we have an adequate emergency/slush budget? How much do I set aside for additional emergency budget? How much do our unavoidable expenditures (which, for us, is pretty much taxes and annual audit) comprise? How much do we accrue? How much do we collect?

One way of considering some of these is not in terms of actual dollars, but percentage. For instance, it is typical (based upon my admittedly limited research) for a non-profit to have a minimum of 100% annual budget as emergency fund. It's typical to set aside 10-15% of income per year for additional emergency fund. If we had a need for replacement contingency (we do not - there are no commons, amenities, etc) I might expect an additional set-aside for that. Percentages are great, as they tend to level the playing field with regard to size, value, etc when you have several data points.

I was curious - from a budgetary and not a negotiating point of view how much other Associations spend for management. Why?

As a consideration for what we want to achieve out of negotiations, I can approach this several ways - and I think all are valid:
* What is fair market price for all the functions?
* What functions could we reduce or remove?
* What is a competitive analysis (kind of related to #1)?
* Are we receiving superior, expected, or inferior soft benefits (e.g. customer service, service/responsiveness to the Board)?
* How much can I afford? <-- Here we start to see the kind of 'inward' analysis
* How much do other HOAs pay?
* How can I normalize how much they pay, since I don't know what is included? <-- One way is to examine their budget instead of their cost.

Thus, the percentage question is in addition to other questions - questions I didn't pose here. Why?

Mostly because those other questions are answered elsewhere. Everyone who is providing my 'by door' information - thank you - but there are many, many posts and articles just on this site going into this detail. That's why I didn't ask this.

Those providing the 'but it depends upon what you ask for' and 'you could save money by (not) doing XXX' - thank you again - but there are many, many posts and articles just on this site that go into these details. That's why I also did not ask this.

I have done about 500 or so HOA proposal over time, not once have I ever been asked to bid on as a percentage of income.
And nor shall we ask for bids as a relationship to our income. I hope that, now, it's clear I'm asking this in the context of bigger research. Our negotiation will center upon their rates and our usage of incremental services.

Again - I'd like to emphasize I appreciate each and every response. The information provided is useful, even if I've gotten few answers to my actual question. I keep explaining, well, because people keep telling me why I want Y instead of X - and I think there's value in (perhaps) discovering multiple ways of looking at a problem space.

The reason I asked about delinquencies is that most management companies charge a collection fee that is passed on to the delinquent owner, but the Association pays up front. If you're not making progress with collections, you're not recouping those fees.

Do your violation letters have pictures? If so are they printed in color? That will up your printing fees considerably. I had one association whose violation letters included the HOA logo, which was in color. So their letters printed in color at 52 cents each instead of black and white at 10 cents each.

Most of your services (violation drives, attendance at board meetings) are going to be included in that base rate so getting rid of them wouldn't change that without some extra negotiation. If you don't have amenities I'm not sure why you even need monthly board meetings but that's an aside.

Is your property far away from the management office? Are they charging you back for mileage? Storage fees? Some management companies charge all their properties a flat fee for the company's office supplies and tech support. I'd really look at those schedule A fees - presumably you're getting a breakdown of those each month.

Our MC charges us $300 to do a mailing to 112 owners. Typical mailing is 1-2 pages. We do about 3-4 mailings per year with one being the notice of the Annual Meeting.

Thanks again! I do not - it's a good barometer, and I appreciate your reply. It makes sense to me. Cheers!

Geno

There goes your $15, $20, $25 down in flames. $80.00 per door is the winner......so far

Sorry, JohnM. I don't know what "odd flex" means. Texas thang?

Know what, JohnM? I sincerely was trying to respond to your question. Did I fail to meet or comprehend your criteria?

I don't appreciate my honest answer and the time I spent reading your meandering remarks eliciting a derisive chuckle and accusations of arrogance.

Hmmmm.... arrogance?

I sure hope to hell that you're not on someone's community HOA's Board. Please say it ain't so!

Oh well.