What does it cost to engage professional management

Can anybody out there chime in on what a reasonable range for professional association/property management would be for a 226 unit homeowners association.

Currently, our self-managed association fees are $290 annually with a solid, well-funded reserve.

Are we talking in the range of $12K per year or $50K per year for management.

At $12K per year that would be about $53 per homeowner, or roughly 18 percent of our current fees. Is that justifiable for the benefits received?

Are there savings to be had by engaging professional management that would offset that 18 percent figure?

Any thoughts are welcome. Appreciate your input.

Thanks for the information.

That is 20 percent of your fees going to limited professional management. Do you think that is worth the cost? Could that $9,000 be better spent elsewhere? Is the problem of "assessment, collection and violation notice letters" sufficient to require 20 percent of your fees?

Lots of questions. I don't know any of the answers. I'm asking. I need all the advice I can get.

Thanks, Michele.

I can relate to the problems that boards have in enforcing covenants and rules against neighbors. It can get ugly, and it is not pleasant for anyone. Similarly, when it comes to billing and collecting fees a third party is always better, I think. Push back is right! You have made some good observations about the value of professional management.

I tend to support the notion of professional management. I am trying to "figger" out what is a reasonable amount to pay for value received. Maybe 20 percent is a reasonable amount to spend on management.

I hope others have some thoughts to share as well. Maybe even some professional property managers can chime in here with their advice.

Our HOA has 311 single family dwellings (houses). Our base rate is $5 lot except that declarant owned lots are only charged $2.50 a month. For this we recieve the following services:

- billing and collection of all dues (The BOD holds final authority, but they send out the notices and such. We only vote on what to do with the holdouts and requests for waiver of late fees.)

- two inspections per month for CC&R violations and all related notices. Unless we step in they handle the whole thing including fines.

- Handling of all finances. None of the board signs on our accounts. We direct the company for certain things, but recurring bills are taken care of completely. We receive a monthly report of our finances and a copy of the bank statements. (All people who have access to our money are bonded/insured.)

- Manager who is available for member contact. They can call her and she handles most questions regarding the CC&Rs. ACC forms are sent there and she forwards to the committee. The committee then sends the company a response and they put out a letter accordingly.

- They keep up membership records and provide certificates of resale when a unit sells. Additionally they provide copies of documents to the title company and send a welcome packet to the unit after sale.

- Notice of annual meetings. For an additional fee they will handle all other mailings for us as well.

The big benefit is that a third party is doing the inspections. While the board gives guidance, it isn't being done by someone with an ex to grind. That combined with the dealing with finances and being available to assist members is well worth the price to me. I wouldn't want to take that on as a volunteer. Nor would I care to see it taken on by other volunteers. At our first election of board members there was a lot of concern because of seeing people's financial information. But that nervousness would be much greater if we had direct access to the money.

Don't pick your management company strictly on the price and especially on the base price. Look to see what is included in the price and what you pay for items outside of that. We have been told that some companies prefer to include fewer thigns in the base price and then run up the bill.

The cost for professional management can vary greatly depending on several variables.

The monthly management cost depends primarily on:
1) the number of Units and location;
2) the services desired, including: number of meetings and number of inspections; number of contractors; amount and content of common areas; and the number of amenities; and
3) the management company's expenses, desired profit margin, and competitors rates.

The first two should be provided, with very specific details, by the HOA to selected management companies via a RFP.
Items a management company considers if they chose to offer a bid include:
1) employee expenses - salaries, benefits, etc.;
2) office expenses - rent, utilities, equipment, supplies, etc.;
3) transportation expenses;
4) insurance and taxes;
5) profit margin desired; and
6) the going rate of other management companies in the area.

The attached sample management agreement provides some of the services an HOA may need.

Glen,

You don't have to convince me about the need for full-time property management. I am behind it. In this thread, I am seeking information on reasonable costs. I am not looking for a dollar figure in particular, but what is a reasonable proportion of annual fees. I would presume that more amenities require both higher association fees as well as increased management oversight and costs.

Right now, it appears that 18-22 percent would constitute a reasonable range of fees for property management services.

So if we were to engage professional property management, our annual fees would have to increase by 20 percent, unless there are significant savings to be had in expenses. So far, I do not see significant offsetting expense reductions.

Is that an accurate analysis in your opinion?

Thanks, Robert.

That works out to about $53 per homeowner per year to engage professional management of the association.

The question then becomes, does the individual homeowner receive $53 of value annually from professional management?

Could it not be asked if our homeowners association would seek a 20 percent annual increase in fees, "You are trying to charge me an additional 20 percent per year just to collect my fees and do the things that the board and volunteers currently do? Where is the value in that?"

Please understand, I think we need professional property management.

Great! That's what I am looking for. Thank you!! (But I don't see that I am making any assumptions here at all about the quality of the management company. I would like to look at this as value added to the individual homeowner from professional property management.)

It is reasonable in an RPF to expect a management company to document the savings in current expenses (income/expense statement would have to be provided) to benefit homeowners that would offset, to some degree (not 100 percent), the cost of engaging professional management?

Thanks!!

George, IMO a response to an RFP probably won't provide the documentation. Questioning during an interview can provide clues which can be followed up by independent confirmation by the clients they mention. Keep in mind that experienced management companies will not simply give you the names of the best, low cost contractors which they have developed over many years.

Let me give a few examples of how we have reduced costs:
1) We took over management of an HOA of single family lots and the first year reduced their legal expense from $8,000 to $0. We also recommended changing insurance companies and cut their premium in half while placing them with a better company and increasing coverages. Also we increased their earned interest from investments. These, plus reducing their management expenses, more than paid for our management costs.

2) For another HOA we found a contractor who would do a job for half the cost of all other bids; this saved the association over four times our yearly management cost.

3) With a third HOA we saved them more than our yearly expense by providing better water management which reduced their water bills combined with their reduction in management fees.

There are several items which most Board members do not consider. One example was a Board's collection policy. When I took over management of a townhome HOA last fall they were placing delinquent accounts with an attorney after 1 month. The attornies were handling 17% of all units! Meanwhile the delinquent owners were getting deeper and deeper in debt due to the additional legal expenses being assessed. And when properties are foreclosed guess what happens? The sale price plumets and that lowers the value of all properties in the community. I convinced the Board to change their delinquent accounts collection policy; to take all accounts away from their attornies; and have me work with the owners in an effort to prevent foreclosures. It has taken awhile and lots of personal contact, but now most of those account are no longer delinquent or are on a payment schedule to clear their delinquency.

Then there are the less obvious items. Such as, last month I recommended to a townhome Board that in the process of replacing roofs to consider replacing first those which are going to be sold. The Board members and the other owners wanted their roofs to have the highest priority for replacement. I pointed out that those sold with new roofs would bring a higher price which would benefit all future sales.

George, perhaps these give you a flavor of what a good managing agent can help a Board achieve.

Help! I am lost. I am not sure I am following you here.

The question on the table is, how can a 20 percent increase in annual fees to engage professional management be justified to individual homeowners?

Where does $53 in value show up each year to the individual homeowner who has to write the check?

I don't see the relationship to strategic planning, or to saving money on services that for the past 15 years have been performed adequately by various volunteers without charge.

OK, I guess. But I still don't get it. What does that have to do with the question on the table? I don't see how it helps to explain to Joe and Jane Homeowner why their fees should go up 20 percent? Why should Joe and Jane vote for this fee increase? How is their life improved by paying 20 percent more?

I am pretty confused and dense right now. Maybe it is the weather outside.

I know what George is asking.

He's wanting the ROI (the homeowner's ROI) to justify for selling the proposition through.

I'm guessing he's thinking Joe & Jill H/O will only accept tangible, bean-counter-ish language: XX dollars in, XX value out.

The problem is, with something like this, there are many "intangibles" that go into the mix.

The board members are all volunteers. So it's presumed that is a non-cost. But it still provides "value" to the organization when the board executes services that a management company will now be charging a fee for.

But the HOA has gotten that "service" for "free," all these years.

But, frankly, in reality, the service always had value (a pricetag), they've just not had to "pay" for it.

Basically, if you wanted to, you could re-work some budgets from years past and "plug" the time value in for the board members services (the ones that you might be asking the management company to now handle). Done that way, your bottom line would more than likely show a loss.

Because it's not feasible to expect that a volunteer board can forever perform in a consistent and efficient way the services that a management company will now be performing, they will either have to pay NOW for the "upgrade," or pay later, at a much higher potential "cost" if the board has to "fix" service issues from one year to the next due to inconsistent, or sometime unskilled, performance of the services in question.

Anyway, the ROI is there. You just might have to be a bit "creative" in the way you reflect it.

Kirk,

"The truth is that some people will never see the value. And those that won't see the value also are the ones refusing to run for the board. It is much easier to keep than get management."

It is the board itself that is opposed to engaging professional management for all sorts of wrong reasons.

This conversation is fascinating. I have been a strong proponent for engaging a management company, but you are convincing me to change my opinion.

I have often wondered why so few surrounding associations avoid professional management. And why there are so few property management companies in our area.

The board of directors may be right, but for the wrong reasons.

George as long as you have the volunteers to run an HOA there is nothing wrong with being self managed. You need to have the policies and procedures in place to help transition new blood onto the BOD. As we saw in another thread a disorganized treasurer can really mess up an HOA but if along with the books the treasurer receives a step by step guide on how s/he is expected to do things it runs much smoother.

The BOD is the principal policy making body, setting policies, standards and procedures. The board may delegate its authority, not its responsibility, to the Management Company, to implement its decisions. If you don't have the volunteers to do the day to day grunt work required then a MC may be the way to go even if the assessments must be raised to pay for it.

The Board does not have to DO everything, just be sure that everything gets done.
Residents who think that the board should "do all of it" for them are living in a fantasy world. That's not what volunteering means, nowadays.

If you have 226 units, what is the time frame just for the billing of the dues, the mailing, posting the payments, banking, then running after all the late payers? The Board needs to put a financial "value" on that job. All this time they have been getting the service for "free." Those days are over (especailly with the younger generation coming up that want to continue working or golfing and don't want to do all that work.)

George:

You are right on the fact that professional management eliminates neighor against neighbor conflict and lingering animosities and you can't put a price on that. And you are also right that associations can effectively self manage but, the caveat is you need a plethera of good, dedicated volunteers and that does not always happen.

I disagree with you that PM offers no value, it does...it just really depends on the association. If you drive through a self managed hoa with overgrown yards, funky paint colors and lots of delinquency on assessments I can show you an HOA that would derive great value from a PM. Size doesn't necessarily matter, I am not sure if you have ever served on a boarc, but I Can tell you people get burnt out, they get tired of doing it and it takes many, many strong people to be self managed. That is difficult in any association.

I don't want to parse words here, but I think we, in fact, agree. I can't be sure.

I didn't say that professional management offers no value. I wrote, "The bottom line is value added for the individual homeowner."

"If you drive through a self managed hoa with overgrown yards, funky paint colors and lots of delinquency on assessments I can show you an HOA that would derive great value from a PM."

But if that is the choice of the homeowners--overgrown yards, funky paint colors and lots of delinquency--perhaps that is the way the homeowners want it to be, as compared with the alternative of a professionally managed association.

I would posit that such conditions say something about the culture of the neighborhood, and the desires of owners, rather than about the value of professional management.

Brad,

I agree completely. That is the whole issue in a nutshell. It is a question of balance between individual property rights and common interests.

When we elect people to a board of directors we empower them to use their best judgment in achieving that balance.

By the way, the size thing is just my observation of what I see around Hoosierland. It has no particular scientific or theoretical basis. And there are plenty of exceptions. It is not a hard and fast rule.

Graham,

You wrote:

>>>THE FIRST is that the costs for Property Management Services do not relate in any way to your overall costs or to your current unit-owner fees.<<<

Is that a mistype? Our PM charges, before we went self-managed, were about 33% of our total dues. I'd say that related to our overall costs and fees.

I personally think the best thing to do is to put together a list of benefits of hiring management. Include the intangibles such as reducing neighbor to neighbor conflict since a person can call the manager to complain about their neighbor and thus the complaints can be dealt with by a manager who checks things out.

Then consider all of your options. For instance, you could decide to get a lockbox at the bank for deposits to go to. This will eliminate the chore of collecting the checks and driving to the bank.

To some it will always come down to a matter of "this is X dollars," or "this is Y percent of our budget." At our last meeting someone exclaimed the reason our dues are so much ($200 a year) is because $20,000 goes to the management company.

The thing is that there is always something that some will insist could be cut to save money, while others believe is essential to the value of properties.

A timely question, since our management company fee is a considerable chuck of our annual budget and I'd love to find ways to reduce our administrative costs.

We're relatively small, compared to your community (156 units) and this year, the management company fee works out to a little more over $13 per month per unit (this year's maintenance fee is $129 a month). Our management company collects assessments, assists us with preparing the annual budget and selecting vendors, runs monthly financial reports, collects delinquency information from the attorney and passes it on to the BOD, and does the initial collection process and violation notices (if late notices and CCR violation notices don't work, the BOD takes a vote to turn the matter over to the Association attorney).

That's a lot for $13 - do other management companies do the same thing for a cheaper price? I don't know, but as we try to keep costs under control while wrestling with reduced income (thanks to foreclosures), this is a question i think we'll take on in the very near future.

In any event, I think you have to look at what you want you want the management company to do, talk to similar sized communities to see how they approach it and who they use, and then look at price. No one likes to pay extremely high fees for anything, but I've learned you truly get what you pay for. If the BOD wants to cut costs by doing certain task themselves, they had better make sure qualified people are available to do it, otherwise it'll be cheaper in the long run to have the management company do it.