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GeorgerwilliamsW
(Indiana)

Posts:768

07/29/2008 7:34 AM
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.

MicheleD
(Kentucky)

Posts:1862

07/29/2008 7:39 AM
This is a very good question, but there are a lot of variables. As usual. Our 300-home HOA just received a quote that works out to $30 a unit per year for assessment collection and violation notice letters only. Our annual association fees are $150 per year.

GeorgerwilliamsW
(Indiana)

Posts:768

07/29/2008 7:47 AM
Posted By MicheleD on 07/29/2008 7:39 AM This is a very good question, but there are a lot of variables. As usual. Our 300-home HOA just received a quote that works out to $30 a unit per year for assessment collection and violation notice letters only. Our annual association fees are $150 per year. 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.

MicheleD
(Kentucky)

Posts:1862

07/29/2008 8:05 AM
I don't know the answers, either. We are just now in the process of obtaining quotes. A lot depends on what services, exactly, the management company will provide. In our case, we have determined that is an appropriate expense given that we have board members who are burning out "running" the association and there is not much in the way of others stepping up to the plate to perform these services. To be frank, the idea that a professional organization is sending out the assessment invoices, collecting the checks, following a prescribed collection process (up to and including turning over delinquents to collection) removes the board member responsible for the same from the sometimes nasty and always unwarranted push-back from some residents. In addition, having a management company be the "bad cop" in sending out notices also removes a heavy load off the officers who have been sending out notices in the past. It's much harder for residents to "make it personal" if the board members are an arm's length removed from the process. In addition, removing these necessary, but often time-consuming and tedious elements from the board members' plates means we can focus more consistently on "big picture" planning and moving projects forward that have been languishing due to having to "put the fires out" often associated with assessment collection and violation notice tracking.

GeorgerwilliamsW
(Indiana)

Posts:768

07/29/2008 8:29 AM
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.

RogerB
(Colorado)

Posts:3725

07/29/2008 6:19 PM
Try using the seach tab to view previous discussions on this.

Roger Borcherding Official HOATalk.com Sponsor DARCO Property Management (Colorado) (303) 925-0150 *See legal notice below (end of page) or go to www.hoatalk.com/legal

KirkW1
(Texas)

Posts:1190

07/29/2008 9:26 PM
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.

MicheleD
(Kentucky)

Posts:1862

07/30/2008 7:18 AM
Oh Kirk. I'm in lurv. Does your company operate solely in Texas, or might they have a Kentucky branch?

RogerB
(Colorado)

Posts:3725

07/30/2008 7:47 AM
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.
Attachment: 1730471744071.doc
Roger Borcherding Official HOATalk.com Sponsor DARCO Property Management (Colorado) (303) 925-0150 *See legal notice below (end of page) or go to www.hoatalk.com/legal

GlenL
(Ohio)

Posts:1466

07/30/2008 10:20 AM
George I suggest you read the post by RobertL3 on some things to consider about hiring a MC. It's one of the best I've seen here although from the tone I suspect he's involved with a MC in some capacity. Depending on the size of your volunteer base it may be a wise thing to do. http://www.hoatalk.com/Forum/tabid/55/view/topic/forumid/1/postid/329/Default.aspx

GeorgerwilliamsW
(Indiana)

Posts:768

07/30/2008 10:35 AM
Posted By GlenL on 07/30/2008 10:20 AM George I suggest you read the post by RobertL3 on some things to consider about hiring a MC. It's one of the best I've seen here although from the tone I suspect he's involved with a MC in some capacity. Depending on the size of your volunteer base it may be a wise thing to do. http://www.hoatalk.com/Forum/tabid/55/view/topic/forumid/1/postid/329/Default.aspx 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?

RobertM11
(Arizona)

Posts:5

07/30/2008 10:57 AM
The company we have here in AZ for 249 homes costs the HOA $1100 per month with the same type of services that Kirk listed.

GeorgerwilliamsW
(Indiana)

Posts:768

07/30/2008 11:55 AM
Posted By RobertM11 on 07/30/2008 10:57 AM The company we have here in AZ for 249 homes costs the HOA $1100 per month with the same type of services that Kirk listed. 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.

RogerB
(Colorado)

Posts:3725

07/30/2008 12:30 PM
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? Your assumptions may depend on the quality of the Management Company. DARCO has saved some HOA's more than we are paid; see the quoted comment by a client's Treasurer in our ad. Examples are: reduction in contractor costs, less legal expenses, lower insurance costs, increased assessment collections, and several other items.

Roger Borcherding Official HOATalk.com Sponsor DARCO Property Management (Colorado) (303) 925-0150 *See legal notice below (end of page) or go to www.hoatalk.com/legal

GeorgerwilliamsW
(Indiana)

Posts:768

07/30/2008 12:46 PM
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!!

KirkW1
(Texas)

Posts:1190

07/30/2008 3:32 PM
Our management company's web site is: http://www.cmamanagement.com I have no idea what areas they serve. For a company to say how much they can save you, they would definitely have to see your books. For instance, if you have a 99% compliance on paying dues within six months, then they won't save you money there. But if you have 20% compliance it is another issue. Also, understand that some of their ability to collect will depend on you being willing to send owners to legal at some point. If you really want to make the sale, then get some busy body to start doing neighborhood inspections. The problem is that said person will not be liked as they must be very picky and upset many people. Many neighborhoods have this person waiting for the chance to "correct" the world. Alternatively, you can simply let them know that they need to replace you if they don't go for the management. If you aren't willing to quit, then you will have a harder sell. Why pay for the service if George will do it for free?

RogerB
(Colorado)

Posts:3725

07/30/2008 4:26 PM
Posted By GeorgerwilliamsW on 07/30/2008 12:46 PM ...... 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.

Roger Borcherding Official HOATalk.com Sponsor DARCO Property Management (Colorado) (303) 925-0150 *See legal notice below (end of page) or go to www.hoatalk.com/legal

SusanW1
(Michigan)

Posts:2316

07/31/2008 9:15 AM
George - A fellow I knew bought a laundromat and then hired a expert in washing machines and dryers to come in for 3 days to train him in how to service all aspects of the machines. He was then "independent" of any need for professional services. Maybe you need a consultant to come in, evaluate contracts and the site, and make recommendations on how to save money in areas of management, etc. You also might consider hiring a financial secretary, a bookkeeper or a maintenance company. Sounds like your Board needs to do some Strategic Planning.

GeorgerwilliamsW
(Indiana)

Posts:768

07/31/2008 10:40 AM
Posted By SusanW1 on 07/31/2008 9:15 AM George - A fellow I knew bought a laundromat and then hired a expert in washing machines and dryers to come in for 3 days to train him in how to service all aspects of the machines. He was then "independent" of any need for professional services. Maybe you need a consultant to come in, evaluate contracts and the site, and make recommendations on how to save money in areas of management, etc. You also might consider hiring a financial secretary, a bookkeeper or a maintenance company. Sounds like your Board needs to do some Strategic Planning. 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.

SusanW1
(Michigan)

Posts:2316

07/31/2008 11:55 AM
George - you said: "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" Strategic Planning is when the Board looks at the PAST - and asks: what did we do, how did it work, what was good about it, what did we learn from it. Then the Board looks at the Present and asks: what and where are we, what is working, what is not. Then the Board looks at the future and asks, where do we want to be in 5 or 10 years. By answering all these questions, the Board can decide what major management steps to take (PM or not)

GeorgerwilliamsW
(Indiana)

Posts:768

07/31/2008 12:24 PM
Posted By SusanW1 on 07/31/2008 11:55 AM George - you said: "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" Strategic Planning is when the Board looks at the PAST - and asks: what did we do, how did it work, what was good about it, what did we learn from it. Then the Board looks at the Present and asks: what and where are we, what is working, what is not. Then the Board looks at the future and asks, where do we want to be in 5 or 10 years. By answering all these questions, the Board can decide what major management steps to take (PM or not) 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.

KirkW1
(Texas)

Posts:1190

07/31/2008 2:06 PM
...here does $53 in value show up each year to the individual homeowner who has to write the check? ... 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 then get management. But to answer your question, you need to go through the RFP process. And then when you select a company you tell them that they have to help you sell this to the owners. The question is asked on a regular basis in associations that are managed. Our meeting started for a very ugly turn when someone pointed out that the $20,000 a year is going to the management company. But to answer your question as to what can the see: 1) Consistency in rule enforcement. 2) Someone to call and talk to about the rules and how to abide by them. 3) Qualified people taking care of the books. 4) Solid collection practices. You may have to be willing to quit the board to get your point across. Why should I pay someone to do what you are willing to do for free? If you aren't willing then perhaps I have no choice. I know I am not interested in the job.

MicheleD
(Kentucky)

Posts:1862

07/31/2008 4:32 PM
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.

PeterB1
(Florida)

Posts:70

07/31/2008 4:46 PM
I think the $53 added cost to Joe & Jill is a bogus argument. If a management company says we can save your residents $53 each if you sign on with us, then there would be no need to increase the dues by $53. The cost is a wash. Many times, you sign up for a service that will "save you money" and you never measure the savings. If a property management firm says we will save you $xx, then it would seem that would be something a Board would want to measure. So far, we have not found a property manager who offered to save anything! We still self-manage (except financials).

GeorgerwilliamsW
(Indiana)

Posts:768

08/01/2008 3:02 AM
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.

MicheleD
(Kentucky)

Posts:1862

08/01/2008 6:47 AM
Posted By GeorgerwilliamsW on 08/01/2008 3:02 AM Kirk, 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, I am very curious which theme above is convincing you to change your opinion to not engage a management company?

GlenL
(Ohio)

Posts:1466

08/01/2008 10:07 AM
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.

KirkW1
(Texas)

Posts:1190

08/01/2008 10:31 AM
It really doesn't matter to me if others choose to engage a management company or not. While a management company may be able to save you money, I would not count on that. But they will save someone some time. Also, it is not always an all or nothing venture. You can probably get some features without getting all features. Personally, I like that a person from outside is involved in the inspection process. I also like that there is someone for people to call about their issues without them having my phone number. You need to look at this as what benefits do we receive for the money, not what money will we save. And if they benefits are not worth the cost, then go for it. If you are willing to do for free what management does for money, then go for it. But to do a cost analysis you would have to delve into your finances and find areas that you could improve. If your dues are all paid up, and your people don't violate the rules, and nobody expects you to be available when they choose to call you then stay away from management.

SusanW1
(Michigan)

Posts:2316

08/01/2008 12:46 PM
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.)

GeorgerwilliamsW
(Indiana)

Posts:768

08/03/2008 6:33 AM
Posted By MicheleD on 08/01/2008 6:47 AM Posted By GeorgerwilliamsW on 08/01/2008 3:02 AM George, I am very curious which theme above is convincing you to change your opinion to not engage a management company? Fair question. Good question. The bottom line is value added for the individual homeowner. Professional management is (in most instances) pure overhead. Overhead contributes little, if anything, to the quality of life in a mid-size, well-functioning association. A total overhead rate of 20 percent is not out of line for an association or even a commercial business. But adding legal fees, insurance, taxes, etc. on top of professional management fees, could push overhead beyond a reasonable level. It would be difficult, I think, to justify asking a homeowner to fork over more than 20 percent of his annual assessment for something that contributes little to the quality of life. Nevertheless, there appears to be an optimum size dynamic that impacts the value of professional management. In small associations, professional management may be needed because of the sparsity of owners willing to serve on the board. In large associations, by sheer numbers, size and complexity, the functions of the board may overwhelm unpaid board members. In associations with a clubhouse, swimming pool or other such amenities, (regardless of the number of members), professional management may be necessary. In a development that has a large number of absentee or part-time resident owners professional management may be advantageous. If the need for professional management is dictated by (1) the need to enforce covenants or rules, or (2) failure to remit fees on time, the problems in the association suggest fundamental issues that professional management cannot properly address. It could be a communication problem; it could be an ego problem at the board level; it could be a "neighborhood culture" problem among homeowners; or it could be something entirely else. One of the great values of professional management is to eliminate the "neighbor-against-neighbor" conflicts and lingering animosities that may arise in self-managed associations. As a point of departure, it seems to me that a homeowners association with few amenities and a membership of 150-350 can be effectively and efficiently self-managed. Am I right? Challenge me on any of this. I am willing to revise my thinking.

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