Management Company Fees

The developer is close to turning over control of our HOA (South Carolina) to the homeowners. A few facts then some questions.

1. 120 standalone patio homes (100 sold, 20 more lots), all homes less then 4 years old, little to no amenities and very little common ground. Public streets, water, and sewage, private trash collection (homeowner optional, homeowner pays).

2. Our dues cover landscaping (our #1 expenditure) and all outside home maintenance/repair. Builder warranties home (inside and out) for the first year.

3. Owners ages mixed from 20's to 80's.

4. Good, open, honest relationship with the developer. Annual meeting, budgets given out, Capital Reserve fund in place.

5. SC does not weight you down with laws about HOA's.

6. 2 units defaulted in HOA Dues. (one in foreclosure, one in estate). Liens filed.

7. Developer presently charging an 8% management fee.

8. All documents filed, we are incorporated, by-laws filed with the CC&R's, etc. so I see no issues there.

I feel as we are a small and a simple association, that we could well go self-managed. I also believe it best we hire a management company to aid/assist us thru the transition and for the first year or so especially until the owners have their arms around how an HOA works as I doubt many present owners understand. We need a heavy to blame things on....the management company...LOL

Now the questions:

1. What would you consider appropiate management fees for say the turn over year?

2. What would you consider appropiate management fees for the year after the transition? I am assuming the work load will be less the 2nd year.

3. What qualifications would you look for in a management company?

Also feel free to express opinions and ask questions.

Thanks all.

Melissa

Thanks for the reply and I do agree/believe we can self manage. My concern is making the transition smooth and acceptable. I think it could get a bit rough do to the inexperience of many here so I like us having a whipping post (management company) if things are not smooth. As said earlier, we are already paying the developer to manage us. People here are used to seeing that cost item.

I have the HOA experience to know what/how to do things and while I am glad and willing to help and guide things I do not want to be anything but the nice neighbor that knows a little about HOA's.

Also I think we will need a Capital Reserve study and there could be a potential of a 5-10% dues increase. While we have a Capital Reserve fund I think the study and recommendations could be better done and will be easier for all to accept if done by a management company.

A few question about this accountant you use and how it works.

1. Where are the dues mailed to? I would assume a PO Box.

2. Does the accountant collect dues and track such?

3. How is the accountant paid? Hourly, %, etc.

Again, thanks.

John

we are a simple HOA as well and I can tell you self management did not work. Our biggest issue was covenant enforcement. No one wanted to be the bad guy to their neighbor and things spiraled out of control. We finally hired a management company to enforce our covenants. We do all the bookkeeping, bills, etc. ourselves and with you having less homes than we do I don't see why you can't do that. I don't know how South Carolina compares to Kansas so it is hard to give you pricing.

I would quantify management companies by talking to other associations they manage. How do they like them, how easy are they to deal with. What results have been obtained, etc.

If you guys want to try self management and have a strong board there is no reason not to give it shot.

John, do yourself and your neighbors a favor and hire a management company. It shouldn't be that expensive considering what's involved.

You might be fine in terms of self management related to limited maintenance, but when it comes to compliance, disclosures, accounting, etc. you better leave it to a professional

John - who takes care of your roads?

And you didn't say if the 8% included the actual maintenance costs (for what you say is minimal commons area) and the billing for collecting dues.

IMHO, if this is a turnover, all ties should be cut with the developer.

Susan

Thanks for replying.

Yes the roads are public. We are a dead end neighborhood off a main town street. Streets in here built by the developer then "turned over"??? to the town. Roads less then 4 years old. No snow here is SC so little road expense to the town...LOL

We will be severing all ties with the developer when the turn over is made. Understand we have a cordial and professional relationship with the developer. He is on the spot when one has an issue and all are happy.

The 8% is basically a Management Service Charge the developer charges us. To clarify. Our yearly dues are $600.00 per home so at this time (100 homes) the dues income is $60K per year and he charges about $6K per year for Property Management so that is $60.00 per unit, per year, which is about $5.00 per unit, per month. I believe in the property management business "lingo" they refer to as "per door" charge. Thus he is charging $5.00 "per door" when I am lead to believe typical property management fees run $8.00 to $12.00 per door when comparing our apples to someone elses apples. Of course this "per door' can vary widely depending on provided services but I am trying for an apples to apples comparision.

Thanks.

Hi John:

I am impressed with your Developer who apparently understands that having homeowner’s involved makes for a much happier development and smoother transition. You may have noticed from various comments on this site that your situation is not overly common with regards to declarant controlled communities.

As a general rule I would recommend for small HOA’s 40-60 self manage in the beginning to help build a reserve fund more quickly. Money normally paid to a management company would be used to build the reserve. For a little larger HOA’s like yours then you have a lot more added time to manage and enforce so you need to determine whether or not everyone has the time or wants to put forth the effort to self manage, if not, then you need a management company. You also may want to consider having an attorney review everything when you transition to insure everything is in order and all aspects covered.

Here is a document I have attached that RogerB posted in the past. He is with a property management company in CO and posted this document to help others and hopefully it can help you.

JohnC,
I did a search for "selecting a management company" and copied the following:

RogerB (Colorado)Posts:4646 08/10/2006 9:07 PM Quote Reply

Robert, As you said proposals tend to say similar things with the exception of costs. And since most RFPs do not provide sufficient details on services needed, and are in some manner ignored in bids, variations may be very difficult to normalize for cost comparisons.

I would start with an RFP and from the responses I would select the top 3 companies to interview. I would require interviewing the Agent who would be the managing Agent - not a "salesman". During a 30 minute interview I would start with the Agent giving a 5 minutes introduction to get a feeling for the person who you will have to work with. Then allow up to 15 minutes for Board members to ask questions and about 5 minutes for the Agent to ask questions. The last 5 minutes can be used to finalize any "loose ends". Ask for a copy of their proposed contract which will include the final services you desire and their costs for these.

Some questions to ask a prospective Managing Agent are:
1) How many years have you been a Managing Agent?
2) What is the average timeframe you have remained as the Agent for each of the HOAs you have managed?
3) How many HOAs do you currently manage?
4) What percent of all homeowners accounts are currently delinquent?
5) How many of times have HOAs you manage been involved in litigation for delinquent accounts?
6) Explain in detail how you inspect, document, and handle violations of restriction.
7) How many times have the HOAs you manage been involved in litigation for violation of restrictions?
8) Explain in detail your money handling procedures and your financial reports.
9) Explain my fiduciary duties as a Board member (this or a simialr question should be asked to give you some indication of their knowledge and willingness to provide guidance to the Board on important matters).

Some questions the Agent may ask are:
1) Why do you want to change your Managing Agent?
2) How long has your current Agent managed the HOA?
3) How long has your HOA employed that Management Company?
4) How many units in the HOA?
5) How often are assessments paid?
6) How often do you hold Board meetings and for how long?
7) How often do you want inspection of the HOA?
8) What common areas and amenities does the HOA have?
9) Do you comply with and enforce your controlling documents and laws?

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RobertG (Arizona) Posts:505 08/10/2006 2:42 PM Quote Reply

We are interviewing potential companies to manage our property. Does anyone have something like a checklist that might be useful in rating each company. Most seem to say the same things in the their proposal, but there has to be a way to rate each to come up with the best. Are there some good questions to ask? Any insights would be helpful.

The dangers of self management is not knowing the current state laws or property code laws. You have to know some simple things like do you pay monthly or annually for your dues. What are the exact expenses for all common areas and to make sure that you have insurance (Liability and Directors and Officers)

Make sure that all of you contractors for your association have their own insurance and you sign contracts with them annually.

Someone has to send out invoices and reminder statements and collect the money and then know the laws concerning late fees and the collection process.

If you are going to self manage, find a good HOA attorney so that you have someone who knows the laws and procedures.

There are some management companies out there who will do partial services or bookkeeping services that can do your automatic billing and monthly financials so that it isn't a Board member involved.

Now some banks offer "lockbox" services and if you want to make it easy, you could use Quickbooks and send out statements by email and that allows people to pay their bills on line directly to the bank.

As for looking for a management company. I would say that it doesn't matter how long they have been in business or how many communities that they have. I would recommend that you don't let them give you a small list of references. I would look at how many communities they have and then you pick which communities that you want to contact and have them provide you with the contacts for those properties and do a quick search on line. Most of the time you can see complaints just by looking up the company.

One last thing. Larger management companies have learned how to hide fees inside of their contracts. Don't just look at the base fee, but look for collection fees, payment plan fees and anything that may be billed back to the homeowners account.

Hope this helped.