Management Contract Pricing

Greetings,

I'm new to the forum and would love any help from the community you can provide.

Our company is fairly new, and I'm getting the sense my pricing on proposals is viewed too high.

In the past, I would help at my old company (I was in accounting) and look over prospective client financials to determine what they *actually* paid for a year of services to ensure our proposals were in-line with their budget. Typically I would find our pricing was 10-20% less than their current fees overall since it was a small company and we didn't need to pay lots of overhead, etc.

My new solo venture (well, me and an assistant) are in a similar position. I prefer to charge more of a "flat rate" with a long list of included services, number of monthly visits, inspections, and so on. Postage, mailings, and rare items (or visits on weekends,etc) are itemized as "additional fees".

Since I've started my new company, I've had about 3 or 4 inquiries for proposals from HOA's who see us listed on the web, but all have never gotten back. These HOS's did not wish to share their financials, so I'm thinking that the rate I'm giving as a "flat" rate looks high compared to their current fees, although Id wager good money it is still less annually than they pay currently since I don't add on much of anything. I even keep resale fees to owners very low. One had their financials listed on their website and my proposal ended up being pretty much their current annual mgmt. fees.

I'm at the point I may not provide any further proposals until I can see the financials because it gives me an idea of the number of delinquencies, maintenance, etc., and helps to determine the workload more accurately.

The two associations we currently have love us, and the feeling is mutual. We love what we do, and we have no doubt as to our ability to respond quickly, manage financials well, and foster better relationships in difficult communities--we really put our all into it, and look forward to landing more contracts.

Any advice from a board perspective on how best to approach this would be greatly appreciated. How do you feel about sharing your financials in order to obtain proposals from management companies? How do you break down and compare proposals so it's "apples to apples"?

Of course, it could be another factor aside from the fees (my personality?) =) I don't know, but I want to rule out the pricing as an issue.

Thank you for your time in helping a new company grow.

Rose

Rose,
I think the first thing you need to learn and then be able to get across to potential clients is the "Price verses Cost Theory" You need to condense this down into a "Elevator Pitch" which is something you can say by the time you go from the 6th floor on a building to the ground floor. Quick and easy. In my opinion your base rates may be to high and by lowering the Sales transfer fees you are taking away a profit center that is very lucrative. Remember the board does not pay those fees. They are paid by the person who wants to live in that HOA. Also Late Fees is another huge Profit Center the HOA does not usually pay unless your contract language says they pay it up front for the dead beats.

Many boards that I am been on over the years have very little experience hiring or firing PMCs. They do not know what questions to ask and what to look for in a new company. Your Sales presentation with have to make it look effortless to make the transition but also explain how you make it that way for the customer.

As someone who has a background in Sales most of my life I always go back to things I have heard over the years. You are a very small company at this time. Think of yourself as the captain of a very small fishing boat. The last thing you should be doing is going fishing for Whales. You need to build you portfolio with small communities and slowly start expanding to larger ones. This requires you go out and find quality PMs who can make and keep you successful. It will not happen overnight and you should not try to make it happen quickly. Slow and steady wins the race.

For the record we just changed to a new PMC at the start of 2020 who would be considered on the smaller side. It was the best decision Our board could have made at the time. We are very happy with the new Company.

Thank you all for your replies, and and should clarify that I had previously done a good bit of management under the previous management company for several of the associations in addition to accounting.

The company I previously worked for had a "do it all" sales pitch for a low price. For this reason their ship is sinking and it's the reason why I left. Way too much, way too soon and this short changed the associations and thats not something I can go along with.

I want to do things differently and make sure that we are a good fit for the HOAs that we serve. I don't want to over-promise and under deliver based on human capacity and number of hours in a day.

My curiosity about transparency of tasks/activity reflected in financials was just my way of trying to learn if we are able to handle their workload without being stretched too thin. The last thing I want to do is provide poor service.

I really appreciate everyone's replies and will continue to watch this thread.

Rose

You should over a "menu" of services including starting small to get you foot in the door. If they like you, they may want more services.

Our MC company is actually a glorified bookkeeper, they do mailings for us (at a charge), and they play the heavy for writing violation letters. Owners only see our MC once a year at our Annual Meeting where he presents our financials to owners. I as the VP and Treasurer then answer any specific financial questions. We on the BOD do go to their office several times a year to ask questions, etc.

Take the old Chinese Menu approach. One from Column A, one from Column B, and one from Column C for $xx.xx.

Thank you, I really like this idea of the Chinese Menu approach =)

I would never bid on a property unless I saw a balance sheet and income expense sheet that was current. I want to know the financial health of the community.

It amazes me that a couple of regulars here post of what a management company should or should not be doing, yet never worked with one. I've read what the responsibilities of each officer's position is in a CAI handbook, but in reality, f you have hired a full service management company, you have turned over the day to day operation over to the manager. Never think a full service manager is just another vendor under contract. Handling accounting, receiving monies, paying invoices and providing financials is the easiest part of my job. I would be less eager to take on a property that struggles to pay its bills and wants the lowest price.

Over the last couple of years I have focused on smaller communities utilizing only bookkeeping service. Less politics.

Max, we agree with you.

We modified our business model four years ago and now focus on condominium communities with fewer than 25 units and few to no amenities--especially no pool. The downside is many condominiums in this unit size range are chronically underfunded as to reserves which generates its own headaches.

When asked to bid, we ask for the Balance Sheet, bank account balances, when the last Reserve Study was performed, percentage funded, past due/delinquent account history, and insurance policy information. We will not bid on a property which does not carry D&O insurance, we prefer they carry fidelity insurance as well. We would like to see the budget/expense reports but since those disclose the amount paid to the existing management company we rarely are given that information.

We plan to propose to two clients later this year we move to a financials only management agreement. Both think every owner should weigh in on any expenditure (other than utilities and such); board members and owners and run around gathering bids for projects. We have explained the necessity of meeting insurance and other bid requirements and apples to apples bidding, we may as well have had the conversation with a speed bump.

I really think you need to learn what a management company does and the different services they offers, as not all are the same. This should be done before offering negative advice to others.

Does your management company have criteria, that might cause your company to decline to bid or qualify your bid heavily, regarding how long ago the last reserve study was done and the percent funded figure? For what is your company looking when it sees the date of the last reserve study and the percent funded figure? And why (though I think I can guess)? Just curious.

I've said before the level of board member involvement on this forum is not reflective of my experience as a manager. I can count on one hand the number of boards I've worked with that run their own meetings, for example. And if I had to get two signatures on every check no bills would get paid on time.

But I've gone a different direction than you. I refuse to manage a condo or townhome ever again, and I prefer managing a large community. There just seems to be less infighting when you get to 500, 1000+ lots.

You would probably have one or two fingers more on the same hand than me of boards that really were involved with their communities. Never had one actually run their own meetings. Also had the same problem with getting signatures on a check.

Unfortunately, starting out new, you tend to get the associations no one else wanted and slowly build your client list with those you can actually work with. My daughter and I are working on a little business model as we have the same technology as the big boys.

A huge part of me says, "Bravo" to the above. I was hoping you would post something like the above. It validates my own experiences as a director when it comes to spending and income.

It occurs to me that the above maybe ought to be a criterion for a (savvy) HOA member to use in deciding whether to run for the HOA board. I am thinking it would have saved me a lot of trouble at my former HOA, where the percent funded was about 25%, give or take, based on the reserve study done three years before. Infrastructure, while maintained, was over 25 years old. Annual assessment income was in excess of $500k. Looming special assessments promise to be large, with many not having the dough.

To be snotty about the dearth of experience of many HOA directors: I bet I would often find this part of the interview entertaining.

Thank you for the elaboration. These are also criteria I think anyone considering serving on a condo/HOA board should consider in advance. The higher the rental percentage, the less desirable service on the board is. If said rentals are heavily STR, then this is even worse, afaic.