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Subject: Management fees on home sales
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ArtT5
(Illinois)

Posts:82


09/02/2016 4:23 AM  
When someone sells a home, we need the management company to do two things: (1) provide a letter to the seller attesting that they are up to date in paying their assessments, and (2) set up an account for the new owner to record their payments.

My understanding is that item (1) is sometimes covered under the blanket fee for services, but may often be broken out as a separate charge paid by the selling homeowner. I'd like to know what would be considered a normal charge for this service.

I don't know whether it's normal to charge for item (2). I'd like to know whether this is normal, and if so, what would be considered a normal charge for this service.

Beyond wondering what's normal here, I'd be interested in comments on whether the normal level for these charges is based on the reasonable amount of time and effort required to provide the services (with reasonable profit thrown in), or instead based on the fact that this is an opportunity to extract additional dollars from someone who has no choice about paying.

As you might guess, I'm asking because charges for these services from our management company seem high. I'll post again with these figures after folks here have had a chance to chime in.
SheliaH
(Indiana)

Posts:2465


09/02/2016 4:47 AM  
"Reasonable", "seems high" and "normal" are all a matter of perception and opinion - what's normal, reasonable or high to you, could be completely different to someone else. If the seller is paying the fee, most boards don't really care about the cost, since this will be a one time fee and I suspect it isn't a deal breaker for buying the house.

I'm sure you would have to include printing, postage and supplies for the letters, checking the account and perhaps waiting until the previous owner gets all his/her money in before closing out the account and switching to the new owner. The new owner will need a new account number, you have to gather his/her contact information, set up online access if he/she will be paying that way, get the bank information if the new owner wants to do automatic deduction from his/her account.

And so on.

Are you on the board of this association? If so, have you asked the property manager what goes into gathering this information? Have you had new owners complain about the cost?

ArtT5
(Illinois)

Posts:82


09/02/2016 5:49 AM  
Shelia, thanks for the reply. I'm not on the board. Complaints have come from owners who are selling, new owners who have purchased, and the developer who is seeing these charges as an impediment to sales of homes that are yet to be build. I'm trying to get an idea whether the amounts being charged here are out of line, and would like to know what is being charged elsewhere. Is $20 reasonable for an assessment letter? How about $200? Same question for setting up a new account.
SheliaH
(Indiana)

Posts:2465


09/02/2016 6:46 AM  
If this community is still controlled by the developer, I would think he or she can simply change the property manager and come up with another fee. If controlled by the homeowners, its board of directors can do it. Has anyone talked to them? If so, what was the response?
SheliaH
(Indiana)

Posts:2465


09/02/2016 6:49 AM  
By the way, couldn't the seller offer to pay half the fee to make the sale go through? How much are these houses going for relative to these fees?
ArtT5
(Illinois)

Posts:82


09/02/2016 7:01 AM  
The developer no longer controls our association but is still building and selling homes here. The question whether the board should object to these fees depends on whether they're unreasonably high. That's what I'm trying to find out. I'm hoping to get a sampling of responses as to what is paid elsewhere.
MelissaP1
(Alabama)

Posts:8082


09/02/2016 8:11 AM  
May I ask a question? Why are these 2 things required? Is there a law? What makes them required to be provided and by who? Seems to me need to establish why the need is needed.

Our HOA we did not set up accounts for owners. They could set up an account on their own at our bank for automatic withdraw. However, they may have to be a customer of that bank in some cases. Otherwise, they just sent a check in for the dues. Not exactly sure what you mean by setting up an account?

HUD has a PUD form that is filled out on some sales like FHA or other government backed type loans. That is usually filled out by the President of the HOA. Does your management company handle that too? That form covers some of the same details about debs/collections. We had a collections report printed out by our accountant monthly. So any board member had access to it. Which means they could easily report that information.

Just curious as the real need and requirement.

Former HOA President
RichardP13
(California)

Posts:3518


09/02/2016 9:23 AM  
Art

Do you know exactly what might be required when selling a home within a HOA or Condo complex as far as the documents are concerned and what the going rate throughout the State of Illinois is?

Been there, Done that
DouglasK1
(Florida)

Posts:1393


09/02/2016 9:52 AM  
Posted By MelissaP1 on 09/02/2016 8:11 AM
Our HOA we did not set up accounts for owners. They could set up an account on their own at our bank for automatic withdraw. However, they may have to be a customer of that bank in some cases. Otherwise, they just sent a check in for the dues. Not exactly sure what you mean by setting up an account?


Each lot is an "account" in accounting parlance. Setting up an account would be to take whatever steps are required to track the accounting for that lot. It could be a file folder, Excel spreadsheet entry, or a "customer" record in an accounting system like Quickbooks. Typically this would include gathering contact information (address, phone number, possibly email). For us this typically takes less than 15 minutes but in an association with more formal procedures could take longer. And of course, management companies (which we don't have) like to advertise a competitive price by keeping their base price low and creating fees for everything, such as account setup.

Escaped former treasurer and director of a self managed association.
RichardP13
(California)

Posts:3518


09/02/2016 11:02 AM  
Art

Does Illinois require the seller to provide the governing documents of the association to the buyer of their property?

I use an online service to provide the required escrow documents to clients. A typical resale escrow package will run $750.00 which will include a transfer fee (transfer old account and set up new account). Typical price could be $200-$250, but I have seen as high as $400. Escrow fees can be higher depending on the specific fees they charge such as move in-move out fee ($350.00 each way), key fee, reserve or building fee, parking fee, remote fee.

In California, sellers have to provide certain documents as required by statues, governing docs, budgets reports, annual disclosures, assessment policies, insurance summary, financial statements, reserve summary and HOA certificate as required by lenders, either standard or custom.

I update annually all associations to comply with any new statues and doing the year update insurance policy, minutes and financials.

Certain fees have no effect on the association itself, whereas we will collect and deposit into the appropriate account, fees associated with the HOA.

To answer your question about what is normal and reasonable, we provide a service that is required in our state and make sure the service provided is accurate and timely as we are representing our associations first and foremost. In providing a service, there is a cost associated with that service, not unlike a attorney or plumber.


Been there, Done that
JohnC46
(South Carolina)

Posts:8268


09/02/2016 1:44 PM  
I would have to look it up but off the top of my head, our MC charges less than $50.00 for a resale package which is nothing but the present owner does not owe us anything nor is their any legal action or outstanding fines/violations between them and the association. That's is about it.
MelissaP1
(Alabama)

Posts:8082


09/02/2016 1:46 PM  
It almost sounds like your HOA is giving too much power to the MC. The job of our Secretary was to keep up with this information. They were to keep up with the addresses and members who live there. It is listed as part of their duties in our documents. Although the Secretary seldom did this work in reality. Basically our accounting firm just applied the check to the lot #. It was required to have your lot # written on the check. Plus the check had their address information.

I am still smelling something a bit stinky here on the MC's part. This does not sound like any kind of "requirement" or expense to be incurred. I took a few accounting courses and heard nothing of this type of process. It just sounds overall fishy.

Richard is a MC and maybe he has more insight on this procedure/process. Otherwise this has never been something that has cost money or been required in our HOA workings.

Former HOA President
ArtT5
(Illinois)

Posts:82


09/02/2016 5:35 PM  
Here in Illinois, the governing documents are available on request. Providing them is not part of what the management company is undertaking for this fee. Not that it would be a big deal to provide them anyway; the Declaration and bylaws are available online to anyone who's interested, and anyway how big a deal is it to run a PDF through the printer and send it out? As I understand it, the service provided is as John describes, just a letter saying nothing is owed, which the seller has to provide to buyer's lawyer before the deal can close. The amount John mentions, $50, sounds to me like a reasonable charge for this service that might require 20 minutes or so of someone's time. Our management company was charging $250, and has been negotiated down to $175.

That's half of what they make on the deal; they charge the same amount ($250, negotiated down to $175) for setting up an account for the new owner. To me, this is not something the company should charge for at all, and if there is a charge, it should be nominal.

Overall they rake in $350 with minimal effort every time someone sells a home, and because the developer is still building, there will be plenty of sales in the near future. The basic fee we pay them is a market price, not a lowball, and this gouging will bring them at least another $30,000 within the next several years. No one on the Board is willing to stand up to them on this issue.
RichardP13
(California)

Posts:3518


09/02/2016 6:41 PM  
Art

I am curious, when you are negotiating the fees the management company charges during the escrow process, do you also negotiate the title company fees, the escrow company fees, the notary fees, property taxes, homeowner insurance, the appraisal fee, city and sate transfer fees, government recording costs, daily interest rates, to name a few.

You pose a question, but every state may or may not be different and some states are more heavily regulated to protect the consumer. In your state, it may only required one sheet of paper. In California, whether we like it or not, we are required to provide a lot of information. Management companies don't charge the HOA a dime for this service. The fees are borne by the seller or their agent. Sellers are free to do this on their own and self managed HOA's can do this also, but there are liability risks associated with the process.

Been there, Done that
MelissaP1
(Alabama)

Posts:8082


09/02/2016 9:26 PM  
A rare thank you Richard on this one... I think you smell what I am smelling too... This MC is questionable...

Former HOA President
RichardP13
(California)

Posts:3518


09/02/2016 9:37 PM  
Posted By MelissaP1 on 09/02/2016 9:26 PM
A rare thank you Richard on this one... I think you smell what I am smelling too... This MC is questionable...



WHY????

The going rate for an escrow package in California is between $600-$800. I have seen as high as $4000. What do you think I smell? Art's MC charged a couple of hundred dollars. Think he shortchanged himself.

Been there, Done that
TimB4
(Virginia)

Posts:16296


09/03/2016 4:03 AM  
Art,

Being self managed, it falls on me to be the liaison between the Association and the lender.
This is typically what I have to do:

1) Complete their form asking specific questions (number of lots, Insurance information, other Associations required to join, current assessment, when due, how many entities own more then one lot and how many lots owned, Reserve Balance, private road agreement, Special Assessment amount, etc.) I also mark on the form to send a copy of the HUD-1 so we know who purchased, when it was purchased and the correct mailing address of the new owner.

Some lenders provide the form in PDF, some in Word. Typically I need to make the changes on the form using PDF Pro, print and sign.

2) Scan document and email to lender

3) Typically a week within closing, the lender asks (again on their form) current status of Assessments.

4) Typically a week within closing, the closing company (on their form) asks many of the same questions and desire a copy of the insurance certificate.

5) Since the document in #1 typically gives a closing date, upon receipt of the final expected payment from the member, a letter is sent to stop any auto bill pays to the Association (so we don't have to refund money). MC may need to stop auto drafts, etc.

6) upon receiving a copy of the HUD-1 (telling the Association the sale actually happened and who purchased the property), if the closing company didn't mind sending it, update the Association records. Otherwise, I may end up with having late payments and having to research who purchased the property.


Total time for all of this, approx 1 hour (perhaps a little more or less depending on the closing company).


Additionally, in Virginia, the Association is mandated by statute to provide a resale package (all governing documents, budgets, copies of minutes, etc) to the seller to give to the Buyer. Because this package requires an inspection of the property, this can take up to two weeks to complete but typically 3-4 hours of actual work. The follow up questions by members (who didn't seem to know that they were in violation) take a few more hours.


ArtT5
(Illinois)

Posts:82


09/03/2016 6:18 AM  
Richard, I'm not suggesting that it's improper for the management company company to charge a fee, or that the HOA should bear the cost. I'm just trying to figure out if the charges here are excessive. If I understand correctly (apologies if not), you're implying that this shouldn't be a matter of concern to the association any more than the amount of title company fees and other expenses paid in connection with the sale of a home. I would disagree, because the management company is able to charge these fees only by virtue of having been engaged in that position by the association. The board owes a fiduciary duty to all its members, including those who want to sell their homes.

Tim, thanks for comments that improve my understanding of what's involved. You lead me to realize that I need to know more about exactly what services are involved. I believe it's limited to producing a single document certifying that the seller has no outstanding obligations, but I may be wrong.

Meanwhile, I've not heard anyone comment on the fee to set up the new owner's account. In my view this amounts to welcoming a new owner with a kick in the shins. Anyone care to explain to me why $175 is a reasonable fee for this service? And, given that it's a service for the benefit of the association, not the buyer, why it makes sense to make the buyer pay this fee?
RogerB
(Colorado)

Posts:5067


09/03/2016 7:34 AM  
Posted By ArtT5 on 09/02/2016 4:23 AM
When someone sells a home, we need the management company to do two things: (1) provide a letter to the seller attesting that they are up to date in paying their assessments, and (2) set up an account for the new owner to record their payments.

My understanding is that item (1) is sometimes covered under the blanket fee for services, but may often be broken out as a separate charge paid by the selling homeowner. I'd like to know what would be considered a normal charge for this service.

I don't know whether it's normal to charge for item (2). I'd like to know whether this is normal, and if so, what would be considered a normal charge for this service.

Beyond wondering what's normal here, I'd be interested in comments on whether the normal level for these charges is based on the reasonable amount of time and effort required to provide the services (with reasonable profit thrown in), or instead based on the fact that this is an opportunity to extract additional dollars from someone who has no choice about paying.

As you might guess, I'm asking because charges for these services from our management company seem high. I'll post again with these figures after folks here have had a chance to chime in.



Art,
We do a minimum of 8 different functions, not just the 2 you listed. Our charge is $95 for a status letter plus $50/hour for the time involved. This consists of $95 for one or more status letters plus our out-of-pocket cost if we make a mistake. The status letter includes several items besides their account balance. Also, in Colorado the HOA must provide the HOA CIC docs of which there are over a dozen. Plus many other items including coordination with realtors and title company; updating accounting software and homeower name and contact; and a welcome letter with important information. The total cost is usually $175.
ArtT5
(Illinois)

Posts:82


09/03/2016 7:59 AM  
Thanks, Roger. So the seller get's charged about $175, which is what we're dealing with here, albeit as far as I can tell for lesser service. Are you also charging the buyer?
RichardP13
(California)

Posts:3518


09/03/2016 10:51 AM  
Art5

Exactly what fiduciary duty does an HOA have in a owner selling their home? The only thing I can think of is providing accurate information, nothing more. The HOA doesn't share in any of the profits the seller might have.

I had mentioned that a typical transfer fee (new owner setup) in California is between $200-$250, sometimes much higher. I charge $250.00. A week ago I joined the YMCA. They charged $70.00 to put my name and address into their system. I am not sure what you mean by " it's a kick in the shin to a new owner" when in fact, as least it's true in California, that the seller pays the transfer fee, not the buyer.

Fees we charge are based on what other firms charge. No different than how we may bid on a association. According to the California DRE Operating Manual, they have a price structure HOA's should consider when budgeting for management service. These monthly fees are as high as $50.00 per unit. I will price based on what the market will bear.

Tim explained what he does, I'll explain what I do.

After December 1st, I will spend about 4 days reviewing any new laws that need to be updated for the upcoming year and update each of the documents that may be used in the escrow process. By December 1st, I have mailed all of the required Annual Budget Policies and Statement to each homeowner as set forth by Calif statues. These are normally about 30 pages now days. I will update each association's information sheet with is about 100 questions total. Monthly financial and monthly minutes are done now by request only. These are put into a PDF program and one month is dropped and another added so I have 12 months rolling.

I invest in a service, HomeWiseDocs that handles the escrow process for us and the associations. There are a few of these companies. I also invest in the technologies that make my business as efficient as possible. We also handle having any liens removed once an account is paid through escrow. I did one two weeks ago where there were 4 liens on the same property. That in itself was $200.00 just for recording and notary costs.

5 years ago I worked for a law firm/management company that did their escrows manually. When one came in everyone ran the other way. Now, once all the prep work is done, escrow processing is a breeze. Some companies will charge up to $175.00 for a RUSH job. I get an email that an order has been placed through the escrow service and if at my desk, the escrow can be processed in 10 minutes. It might sound like a lot for just 10 minutes of works, but it is only possible because of the ongoing processes in place.

I don't know what is required in Illinois as no one from your state has stepped up, but in California, which as you know is heavily regulated, our responsibility to our clients is providing timely, accurate information when called upon.

Been there, Done that
ArtT5
(Illinois)

Posts:82


09/03/2016 11:56 AM  
Richard, our management company is charging $175 to the seller for providing documentation prior to sale, and an additional $175 to the buyer for setting up their account. I'm referring to the second charge as a kick in the shins to the new owner. They're being charged for the privilege of paying their assessments. I'm still waiting to hear anyone say they've heard of anything resembling a $175 account setup fee for a new owner.
MelissaP1
(Alabama)

Posts:8082


09/03/2016 12:09 PM  
Never heard of this expense and does not make sense to me. Just going to be frank. Our HOA you wrote us checks or signed up for an automatic deposit from our bank. There was never a charge to "set up an account". I just don't see what that would even detail to charge.

My lithmus test on these charges surprisingly is can you sue for them if not paid? Would the court consider non-payment of these fees "Damages"? The court system can ONLY make a party "WHOLE". So without paying these fees do the HOA suffer any kind of loss/damages? Meaning does the HOA have to pay and pursue? What happens if not paid? If not enforceable by law, then I call BS.

Former HOA President
RichardP13
(California)

Posts:3518


09/03/2016 1:31 PM  
Posted By ArtT5 on 09/03/2016 11:56 AM
Richard, our management company is charging $175 to the seller for providing documentation prior to sale, and an additional $175 to the buyer for setting up their account. I'm referring to the second charge as a kick in the shins to the new owner. They're being charged for the privilege of paying their assessments. I'm still waiting to hear anyone say they've heard of anything resembling a $175 account setup fee for a new owner.



Art

I will give you a high end escrow demand.

Payable to Management

Documents-$400.00
Transfer Fee-$250.00
Three Day Rush-$50.00
One Day Rush-$175.00
Minutes-$50.00
Financials-$25.00

Payable to Association

Key Fee(s)-$100.00
Remote-$50.00
Move-In-$350.00
Move-In-$350.00
Water Usage Assessment-$100.00
Reserve Contribution-$2000.00

When escrow is opened, we are dealing solely with the seller, as they are members of the association at the time of the transaction. When an order is placed, we will have certain items paid up front, while others at close of escrow. We don't tell anyone where the money should come from. We could care less, just as long as it is paid. All we do is provide the proper documents as required by our state statues in a timely manner.

This service is provided in our contract. If an association would rather take on that responsibility that is their prerogative and we will adjust the contract or agreement accordingly. What we charge is in line with what this industry charges in the state of California.

Food for thought: On average throughout the year, a MC will handle escrow transactions on .5%-1% of the number of doors in their portfolio on a monthly basis. Let's say your MC has 10,000 doors or units, they are doing between 50 and 100 each month with the average escrow package at $650.00. They will generate between $32,500-$65,000 per month in additional revenue, without ANY expense to the Association.

In the years I have been in this business, I have never had an association consider doing this on their own. Can homeowners (sellers) do this on their own, absolutely. In 6 years I have had three, to my knowledge, try.

Yes, you are right, we are able to generate these extra revenues by virtue of our relationship with the association. Remember, we had to earn that business, it wasn't just dropped on our laps. The escrow process is a selling part of our presentation to a new association.

As far as Alabama is concerned, each state has its own rules and leave it at that.

Been there, Done that
RogerB
(Colorado)

Posts:5067


09/04/2016 8:56 AM  
Posted By ArtT5 on 09/03/2016 7:59 AM
Thanks, Roger. So the seller get's charged about $175, which is what we're dealing with here, albeit as far as I can tell for lesser service. Are you also charging the buyer?



Art, the total cost for the first 8 services is $175 and is all charged to the seller. There is no charge to the buyer for the sale transaction.
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