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Subject: Question rate increases for management company.
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JohnT38
(South Carolina)

Posts:26


04/17/2019 9:36 AM  
Recently, our HOA management company 'notified' us that they were going to increase their fee by 5%. There was no formal communication of this rate increase. Instead, we found out at a monthly meeting when we were reviewing our budget. One of the line items in our spread sheet is for management fees. The new figure was shown and a comment was added that the fee was increased 5%. I asked the manager about this and she replied, "Honestly, the proposed budget and increase in management fee has always been presented in the exact same fashion."

I've only been on the board for a year but I was shocked that the management company did not speak with us before or provide a written notification that their rates were going up. My professional back ground was in the I.T world and I managed many vendors as part of my job. Whenever any of them wanted to raise their rates they gave some kind of justification for the increase. It often provided highlights of their accomplishments during the prior year. It just seems odd to me that we should blindly accept rate increases because that's how it's always been done.

Am I over thinking this and is this typical?
JaredC
(Texas)

Posts:214


04/17/2019 10:20 AM  
It's not unusual. You're also coming at it from a business standpoint which is smart. It's probably a good topic of discussion for a board meeting to require the PM to notify you of any proposed future increases. It's also probably a good time to review all your other vendors too. You're right it's just good fiscal stewardship.
MarkM19
(Texas)

Posts:310


04/17/2019 10:30 AM  
John,
It is a little late this year to fix this and it is probably in their contract fine print.

What I have done that has been very successful in the past is 3 months before the first budget meeting get the board to approve a simple letter that is to go out to every vendor and it states that IF any vendor that chooses to increase fees in the coming year the board will automatically go out and get 3 bids for services and they will have to compete for the business. This includes the PM company. Give them 30 days to send a notice if they plan an increase. You can't bluff so be prepared to follow through if they send a increase request. We had a 1 million annual budget and 3 years in a row we had no increases. This was when I was President of my Ca. board.
BillH10
(Texas)

Posts:361


04/17/2019 10:33 AM  
At a minimum, as a courtesy, the management company should have discussed it with the Board during the budget development process, before finalizing the budget. We would have.

However, as owners in associations in California and Texas for nearly 30 years, and as board members for many of those years, we have seen the management company present their increase just as they did with you.
ND
(PA)

Posts:283


04/17/2019 11:05 AM  
A couple suggestions:

1) Fees, automatic increases to fees and auto-renewal of contract should be stipulated in your current contract w/ the MC. If there's no mention in the contract, I'd have a discussion w/ your Board as to how you want to proceed. If the MC has been w/ you for a while, does good work, and may deserve an increase, then you may not want to make waves (just be aware for next year). However, if the MC is mediocre or otherwise underserving of an increase, then you should be able to politely point out that it's not in the contract and an increase is not happening.

2) Do a little investigation yourself to see if they're telling the truth. You should be able to see prior years' budgets and contracts to see if it has been a usual thing for them to increase each year. Ask former Board Members about their experience. If the stories don't agree, it could be that the MC is trying to pull one over on a new Board.


One thing I learned from contracts for routine services like landscaping, management, etc. is that you can't always be so fixated on price (I'm not saying you are, but helping you think longer term as a Board Member). You're developing relationships w/ these contractors. Paying a bit more for good services to a company you trust and have developed a good relationship w/ over the years is well worth it. While saving money is good, there is a learning curve for new contractors that may involve significant time from Board Members as well as the unknown possibility of the new contractor being a dud. Ending up in that situation is tough since you're stuck with a crummy contractor for a while, will need to eventually redo the process of finding a new contractor, and have destroyed the relationship w/ the previous contractor.
MarkM19
(Texas)

Posts:310


04/17/2019 11:24 AM  
ND,
I heard very similar dialog from prior board members when I raised this idea the first time. I was told by the long term members that we need to be good to our Vendors. We need to be friendly and we want them to work for us with a smile on their face. This was when I first got on the board like John and our finances were terrible.

My first year we had only $3400 in our operating account and they were borrowing $20k monthly from reserves ( they were not making the monthly contribution to reserves )just to pay the bills. They made the mistake of making me treasurer. I told them that the only way we can run the HOA is to run it as a business. I told them if you want vendors to be happy make sure your checks clear at the end of the month. As far as employees being happy while they are working on your site. Who knows what vendors do with increases. I bet they are not passing these increases on to the employees in most cases.

No company deserves and automatic increase annually.
JohnT38
(South Carolina)

Posts:26


04/17/2019 12:42 PM  
Good suggestion. Thanks!
JohnT38
(South Carolina)

Posts:26


04/17/2019 1:08 PM  
You've brought up some excellent points. I have dug through the contract and there is nothing regarding automatic increases or auto-renewals. We signed a one year contract in 2007 and it has never been updated. I find this very odd. There has been a rate increase every year over the last 5 years that average 2.8%.

I totally agree with you that you can't simply be fixated on price. Where I struggle with this situation is that the board is not happy with MC's performance. In addition, 12 years is a long time to not get competitive bids to compare price/services. I am in the process of drafting a RFP and submitting it to the current company and 2-3 others.
GenoS
(Florida)

Posts:2907


04/17/2019 1:08 PM  
Posted By MarkM19 on 04/17/2019 11:24 AM
No company deserves and automatic increase annually.

Amen. Every vendor and contractor should be bending over backwards to make sure you're happy with the goods and services you're receiving. There's nothing wrong with having a good working relationship with your vendors but YOUR happiness is paramount since YOU are the customer.

For 20 years we had the same landscape contractor. There was a period of several years when they'd ask for more money just about every year due to the "rising price of fuel". Then came a few years when gas prices went down. You could hear a pin drop when they wanted another increase. The new board at the time, over the objection of the landscape committee who had become very friendly with that vendor, cut them loose after an attempt to negotiate went nowhere.

Vendors will say anything to get what they want. An association should stand firm by what it wants. Fair is fair.
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