How to Hire the RIGHT Community Management Company. A Primer for Board Members.
Welcome to the Board Member’s Guide to Hiring the Right community property management company. Whether you live in a condo association, townhome association or Homeowners Association, it is critical that you have the right management company with the right qualifications and credentials to properly manage your association.
I have put together this guide to help you make an informed decision. I believe that an informed decision is very important because it will ensure a long-lasting relationship with your new management company. Not only am I certain you are looking for a long term working relationship but I believe that you are also seeking a relationship that is both mutually beneficial and enjoyable.
Furthermore, did you know the relationship between an association board of directors and the management company is very similar to a marriage? The reason is quite simple. In a marriage there is frequent and steady interaction not unlike the frequent interaction between a condo community board and the management company. And the reality is that all too often, the board of directors make hiring decisions based on information that DOES NOT lead to a long term mutually beneficial relationship. In fact, did you know the average life of a relationship between a community association and a management company is ONLY 1.5 years?
In order to hire the right management company, it is imperative that the board take some time to identify the requirements specification otherwise known as an RFP for new proposals. In order to identify the requirement specifications, the board needs to have any understanding of community property management.
The good news is that I have put together this guide to help make this process much easier. Here are some of the questions to consider when crafting the RFP:
- Is it important to have faster response times?
- Do you want better communication by the new management company?
- How important is it having a proactive action oriented company in place?
- Is it important to have a highly skilled project manager to oversee the larger scale capital projects?
- Do you want to have RFP’s developed for the larger scale projects so that you can easily compare bids in an apples to apples fashion?
- Do you want to ensure that all fees are 100% transparent and that there are no hidden fees?
- Do you want a community manager attend all of your board meetings?
- Do you want support for after hours emergencies like leaks and floods?
- The board should determine what is important for the association and not let prospective management companies sell them on their strengths and let them hide their weaknesses.
The only way for the board to determine what is important is to take the time to learn about why most associations switch management companies. As a result, we’ve included the top 10 reasons why associations switch management companies.
In fact, did you know the average life of a relationship between a community association and a management company is ONLY 1.5 years for communities that have 50 units and less?
The Top 10 Reasons to Fire A Management Company
10. Board does not receive (accurate) monthly financial statements. Don’t become the next victim of FRAUD!
9. There is a HIGH spending limit (or NO spending limit) for the property manager (and you have been surprised with expenditures in the past). Don’t let your current manager drain your account. Put better financial controls in place ASAP.
8. Poor transparency in management services ie. No competing bids for projects or service contracts. Ideally, the management company should be asking the boards on an annual or tri-annual basis if the board would like to rebid the contract maintenance service agreements such as snow removal or janitorial services. Furthermore, something sounds fishy if they are trying to avoid competitive bids or continually steering bids and services through the same company or companies especially when it comes to larger more expensive projects.
7. Bully behavior. In this scenario, the property manager is bullying the board into getting their way each and every time. The board is literally afraid to fire the management company. Hard to believe? This happens more often than you realize.
6. High Property Manager Turnover. You are on your 5th property manager in 2 years. Or you keep asking for a new property manager because you are dissatisfied with the prior property manager’s performance
5. Lack of compliance with the management agreement. Don’t accept anything less than EXCELLENCE from your property management company.
And the reality is that all too often, the board of directors make hiring decisions based on information that DOES NOT lead to a long term mutually beneficial relationship.
4. Rude and unprofessional behavior. There is absolutely no reason why an association should tolerate rude and unprofessional behavior.
3. Poor communication and lack of response from the property manager. In this scenario, the property manager either “forgets” to return phone calls or emails, or responds weeks later. Or even worse, takes action and spends money to resolve issues without advising the board.
2. Property manager is receiving kickbacks or money from vendors. This drives up your assessments without you even realizing it.
1. Suspicion of theft of funds (or theft of funds). Theft of funds can happen many different ways. Some of the most common ways are as follows:
- Co-mingling of funds. The management company comingles your money/account with other associations and your money disappears or is unaccounted for.
Fictitious vendor payments. The property manager writes checks to a fake vendor and is benefiting at YOUR expense.
- Low or no separation of duties. In the scenario, the property management’s accounting department has little or no separation of duties. For example, in a one person company, the property manager is opening the mail, entering the bills, paying the bills and reconciling the bank statements. There are no controls in place and this is a high risk scenario for FRAUD.
- Full Management Control of Reserve account(s). In this scenario, the management company has full control of your reserve account. In one example of fraud that happened in the Chicago area a few years ago, the management company had full control of the reserves and would use the money for their real estate development projects and the board of directors had NO IDEA that this was happening. Don’t be the next victim of FRAUD.
What are the most important qualities in a new management company?
Now that we have shared why associations switch management companies, let’s discuss the qualities that associations and boards SHOULD look for in a new management company. This is important is because these are the qualities that are going to produce the best results for the association and will ensure that there is a long term healthy relationship between the management company and the board of directors/association.
The following few pages illustrate some of the most important qualities that association should look at when searching for and vetting a new management company. Feel free to use this worksheet as is or modify it to suit your particular association. And please feel free to contact CPS if you have any questions about this worksheet.
Management Search Comparison Matrix
|Item||CPS||Current Management Company|
|Company and Staff Overview|
|Address of Company/proximity to Association|
|Are you willing to offer the board a tour of the company office space?|
|Describe the overall focus and organization of the company. What other types of services does your company offer? Does your company exclusively manage community associations such as condos, townhomes and HOA’s?|
|What are the credentials of the property manager you are proposing for our association? How can we contact them?|
|What are the assurances we will keep the same manager? What are the guarantees on keeping the same manager? Our association will need assurances that we won’t have a high rate of turnover of property managers|
|Describe the overall transparency of your management agreement; How detailed is your agreement? What areas does it cover? What is not included in the agreement? Length of agreement, terms, and cancellation policy?|
|Describe the people who will support our association and provide the services? How many hours are dedicated to our building? Are they a member of the CAI(Community Assoc. Institute)? Do they actively participate in educational programs conducted by the CAI?|
|Do you have designated cleaning agency? How often do they clean halls, garage, common areas, etc? How often will they visit the property? What is the cost?|
|Item||CPS||Current Management Company|
|General Customer Service and Communication|
|Describe the features and benefits of your online support tool|
|Describe the communication methods you are proposing between your firm, the board and homeowners|
|Daytime Response time guarantee|
|Does your company procure or assist in the procurement of insurance?|
|How will your company handle after hour emergencies?|
|Project Support/Minor Maintenance Repair Support Services|
|Describe the project/repairs support services for smaller cost items? Is this support included? Who will provide these services? What if that person is unavailable, sick, on vacation or leaves the company?|
|What are the Project Management service fees for larger scale projects? At what point is there a cost for project support services? Describe what is included in project support for larger scale projects.|
|Can we recommend our own contractors/custodial services? Our building requires 3 bids, does your company do this on every job? What is the response time? Does company receive $$$ from vendors?|
|Is company willing to sign a sworn statement guaranteeing no kickbacks from vendors of any type for any size project? Does the management company own an affiliated construction company that handles the client association projects? Is there a potential conflict of interest?|
|Describe who will oversee larger scale projects and the credentials of the project manager.|
|Snow Removal services- who is contacted and how often? What is the cost?|
|Elevator repairs – who is contacted and what is the response time?|
|How will your company handle Preventative Maintenance services for our association?|
|Item||CPS||Current Management Company|
|Board Meeting Support Services|
|Board meeting process (how do you prepare for the meeting, what steps are taken in preparation for the board meeting; how do you help ensure the board meetings are efficient and effective) How often do you recommend the board meet formally? Do you attend this meeting? Is it included in your fee?|
|Board meeting management report; please include a sample of what it will look like|
|Accounting Services /Financial Controls|
|Accounting services – Collections. How will you handle them and ensure that the past due amounts are dealt with in accordance with our collections policy?|
|Bill payments – how does the board still retain control of expenditures? What steps does your company take to ensure only approved bills are paid?|
|Describe the NTE (not to exceed) you are proposing for our association. How does it apply to day to day operations? How will you ensure the NTE is upheld?|
|Describe at least 3 examples of cost savings for your association clients|
|Do you send out monthly updates of financials? Is this included in your fee?|
|Describe how Special Assessments/loan administration is handled? Is there an extra fee?|
|Long term capital planning|
|Does your company review current Decs & Bylaws/Rules & Regs to ensure conformance/compliance?|
|Long term capital planning/ 5 year plan – Is this included in fee? Please provide an example of a capital plan you have provided to another client|
|Item||CPS||Current Management Company|
|Pricing and Extra Charges|
|Base Monthly Fee & what is included|
|Please include a DETAILED itemization of ALL potential extra charges above and beyond the base monthly fee|
|Describe all additional sources of income beyond the base monthly fee and the itemized additional charges for your company if you were to work as our new management company?|
|Total Score (board only)|
Your friends at Chicago Property Services thank you for taking the time to read through this management search guide. We hope you find the information useful during your search for a new long term community management partner.
I hope this document and guide will help you select a new management company that will result in a long term healthy relationship with the association and board of directors.