Avoiding the Pitfalls of Unsolicited Management Proposals

For the community association board being pressured by owners and wanting to save every penny possible, the low-ball bids for services, including management services, often seem too good to pass up. Beware that there is a downside with negative impact on the association.

It happened in the housing and real estate crash of the late 1980s and early 1990s and it is happening now. During times of decline in the housing and real estate industry, high unemployment job seekers from every facet of the real estate spectrum find themselves in need of income. The influx of professionals serving the housing and real estate industry into the community association management industry has become a trend. Even in states that require manager licensing, the community association management industry is flooded with new community association managers and management firms.

Direct marketing in the community association management industry is expected and, for the most part, ethical; however, there is much to be considered by a board of directors receiving those “too good to be true” proposals promising better services for an unbelievably low price. To avoid the pitfalls of buyer’s remorse and potential losses for your association in the long run, here are tips that will help you sift through the sizzle and get to the steak of the management services that will actually be performed.

Professional management companies seek to maintain long term relationships. Consider the background of the companies or individuals that are being considered. Find out how long they have been in business, the average number of years that their clients contract with them and how many clients that they have. Professionals from the real estate, home building and brokerage industry could bolt back to those industries when the market improves for quick and more profitable income gains. Ask the applicants where they see themselves in three to five years.

Licensing does not guarantee an experienced manager. Even though your state may require licensing of managers and, in some cases, management firms as well, the licensing requirement does not guarantee experience. For example, in Florida a person can become licensed by taking a two-day course that basically teaches the applicants to take the state test, passing a criminal background check and paying a licensing fee. There is absolutely no apprenticeship period; therefore, you may hire a licensed manager with little or no experience in managing community associations. You can avoid the pitfall of hiring the inexperienced manager by learning about their years in the industry, educational background, training practices and membership in professional organizations such as the Community Association Institute.

Inexperienced managers are subject to make costly mistakes. An inexperienced manager could unknowingly make a mistake that could be costly to the association. Similar to your lawn or pool care professional, your management professional should be properly and adequately insured to cover losses of funds, acts of negligence, etc. Additionally, your professional should make use of sound accounting, internal controls and banking practices. Find out if the applicants offer the following:

Fidelity bond and general liability (including limits of policies)
Protection of electronic data
Internet security
Bank lockbox service
Positive pay checking
Out of state back up of data
Firewalls
Sophisticated banking access
Board member 24-hour access to on-line financial and operating reports
Internal audits of the management office
Direct contact with company leaders
Ongoing staff training practices
Industry-relevant credentials

Promises that they cannot keep. Consider the services that your association currently receives and determine if the proposals are “apples to apples.” If your current manager provides monthly accounting records on a timely basis, make sure that the proposals spell out the frequency and time table for delivering financial reports and other information to the board. If the proposal is “all inclusive” make sure that the applicants have a clear understanding of the estimated number of publications, copies postage and office supplies that your association typically generates in a month or a year. In many cases, it is cheaper to utilize a cost-plus structure, which also allows the association to better track expenses.

A quality professional management company has the ability to handle association business timely, i.e. sending out deed restriction notices, processing architectural requests, handling calls and emails from owners, sending out billing statements/coupons, etc. A professional management company has the bandwidth, technology and resources to do this, as well as an office environment, back office support and state-of-the-art equipment to provide proactive leadership.

Make sure that the applicants have the resources to monitor and educate the board regarding legislative matters that could affect the association financially and its members’ quality of life.

Be sure to check references on the applicants along with their Better Business Bureau status. If you live in a state that requires licensed managers, be sure to check with the appropriate department to determine if the licenses are active and if complaints are on file.

Sherrill Schafer, PCAM®
President
Community Management Concepts, Inc.
Jacksonville, FL