12 tips for evaluating your current HOA management company or for finding a new one.
A Board Member’s (and Management Professor’s) Perspective
How good is your association’s management company? Are you getting the service you are paying for? Is better service available at a better price? Should you make a change? How can you tell?
These questions probably concern board members more often than we’d care to admit. Unfortunately, the process of evaluating alternative management (as well as our own) can loom as such a daunting prospect for the typical volunteer board member that the status quo may remain in place even though satisfaction with the current manager is minimal. Having just gone through the process, I strongly recommend that you evaluate your management company’s performance – even if you are not currently contemplating a change!
When our association decided to seek out new management, we constructed a set of structured questions for systematically comparing management companies including how meetings are conducted, how records are kept, how rules and regulations are enforced, how budgets and finances are handled, how maintenance is managed, how costs are assessed, and other important matters. How to apply these criteria in practice, however, is left up to you. I want to share some practical suggestions from our experience that hopefully will make the process a bit less intimidating. Although some of these suggestions may seem obvious, you might be surprised at the differences you can detect among current and potential new managers by following these tips.
Survey your homeowners.
Under typical governing documents, the board of directors has sole discretion to choose management and will maintain primary contact with the management company. Nonetheless, homeowners can have excellent (and often eye-opening) information as to how management responds to work order requests, complaints, emergencies, and other matters within the scope of your management contract. While our current management company makes it a policy to “treat every homeowner as if he or she is a potential future board member,” we found a surprising level of dissatisfaction with our former company in terms of courtesy, professionalism, and responsiveness to homeowner requests. Many homeowners gratefully thanked us for seeking their input, and several told us they had given up even trying to contact the manager because they had been treated rudely or their calls were never returned.
Call around.
You would be amazed at what you can find out just by making a phone call to a management company. Are you greeted promptly and courteously by a human being, or are you shunted immediately to an impersonal, confusing mechanical call-forwarding system that only a mind reader could decipher? Can several other people in the company office knowledgeably handle an inquiry if your manager is not in, or do you have to leave a message for a particular individual in a bursting or already full voice-mail box?
Create your selection criteria before soliciting bids.
We found it extremely helpful and time-saving to ask for formal bids that explicitly addressed the written criteria that we created. While we used ECHO’s Guide to Management Company Interviews, you could also create your own. This practice allowed us to eliminate from consideration immediately companies that did not provide the full array of services we desired (e.g., those that out-sourced their financial, accounting, or bookkeeping functions), and to narrow the focus of inquiry for personal interviews with finalists.
Visit the offices of your finalists.
Although professionalism (or lack thereof) can manifest itself in many forms, a cluttered, disorganized office staffed by harried, overstressed personnel can mean that the company fails to select, train, or support its employees well enough to fulfill effectively its management obligations. Are there stacks of unopened boxes of client documents strewn around the office? Although the ability to attract new clients may be a good sign, poorly managed growth can leave your association just one of many voices crying out for its management company’s services. Don’t stop at the slick marketing materials! Make sure that your company invests in the systems needed to deliver adequate customer service to a potentially growing client base.
Ask to see them handle a homeowner inquiry, complaint, or request.
Just having the company walk through their procedures for dealing with violation notices, delinquency collections, and other day-to-day management issues can show you a lot. How readily can management personnel answer routine (and not-so-routine) questions? Wouldn’t you rather know how the company operates now than after their ineffective handling of such matters costs your association time, money, and aggravation?
Ask to see them demonstrate their information systems.
We are extremely impressed with our current company’s state-of-the-art relational database system that allows anyone in their office handling a phone inquiry to access relevant information promptly by name, unit address, or other indices, and to update records such as tenant lists or work order progress on an ongoing, real-time basis. Particularly in the Silicon Valley region, where access and exposure to the latest technological tools is virtually a given, management companies should be expected to adopt these tools to optimize service delivery. A company that clings to outmoded computer or paper-based systems may be unwilling or unable to invest in the resources necessary to fulfill adequately its management obligations, relying instead on board ignorance, apathy, inertia, or unwillingness to compare alternatives in order to hang on to its clients.
Ask for follow-up information and see how soon you get it.
Information pertaining to educational background, professional certification, training and experience, current client lists, references, and resumes of key personnel can provide critical insights into whether a new company will be likely to provide the improved service you are looking for. Equally telling is the responsiveness and timeliness of their follow-through; if it takes forever to get what you need when they are trying to sell you on their services, doesn’t it seem unlikely they will do any better once you are already on board as a client?
Ask about the proposed level of on-site presence.
We were further impressed to find that one company’s proposal included a minimum of four on-site inspections and walk-throughs of our association’s property per month! We were equally unimpressed to find that one of our finalists had not even bothered to visit our property before submitting their bid! Again, if a company’s commitment to hands-on management is lacking while they fish for your business, it can hardly be expected to improve after they “hook” you.
Ask about possible discounts to initial fee proposals.
Although a superior company may at first appear to cost more than the company you are now using, it may be able to offer sizable discounts on any number of items. For example, our current company was able to afford us substantial savings because we use coupons for dues rather than monthly statements, a discount that brought their bid from slightly more than we had been paying to considerably less. They also offered favorable terms on expenses such as copying, mailing, and related costs that, although nominally minimal, can “nickel and dime” you for a fair amount.
Ask about transition planning.
Our current company was both willing and able to get a major head start on inputting our homeowner mailing list, governing documents, and related items into their database system in order to facilitate a smooth transition within the shortest possible time period. This greatly increased our overall transition comfort level–and without the extra start-up fees that some companies may charge.
References, references, references!
It is literally impossible to overstate the importance of references, both in the initial stages of determining from whom you will seek bids and in choosing among finalists. Ask your insurance professionals, attorneys, maintenance contractors, landscapers, and other service providers which companies they like to deal with. If a management company is slow getting these contractors information or documentation that they need to do their job for you, chances are the same will be true when you need something, thereby creating a doubly negative impact on your ability to run your association effectively. Above all, be sure to contact other associations currently managed by the companies you are evaluating! Is the company you are considering about to be replaced by dissatisfied clients? Shared experiences among homeowners and their board members can be the richest source of information for warning you of potentially disastrous managers, and for steering you toward one with whom you can work effectively now and for the foreseeable future.
Keep the relationship at arm’s length.
Finally, although smooth working relationships with managers are essential, it is best to maintain full board control over association operations, including the right to change management companies if that should become necessary. Be extremely cautious when it comes to contract clauses (e.g., complicated termination provisions) or financial practices (e.g., direct payment of management fees via bank fund transfers) that limit accountability or otherwise give a manager undue power over the association. We found ourselves greatly burdened by a confusing, ambiguous, and outdated termination notice provision (drafted by our former company) that delayed by almost 90 days our switch to the management company we wanted to work with; meanwhile, the former company continued to pay itself out of our funds through use of an ill-advised direct transfer authorization executed by a prior board.
Expect most reputable companies to use some form of a standard industry contract, such as the one approved by the California Association of Community Managers (CACM). Check with your legal counsel before entering into any important agreement, especially one about which you have doubts. Our attorneys also suggest having your insurance professional write a fidelity bond that will cover you against the possibility that an employee of the management company improperly makes off with association funds.
Conclusion
The time-honored adage, “Marry in haste, Repent at leisure,” remains as valid as ever–whether in reference to relationships with people or relationships with management companies. Although it can take a fair amount of time and effort to conduct the sort of thorough evaluation described above, doing so can be critical to establishing an effective working relationship with your current or a new management company. Failure to do so can allow managers to become complacent (e.g., “We don’t care; we don’t have to.”), while comparisons make managers aware that they remain in ongoing competition with other potentially superior service providers. The results can include improved, more accountable, more service-oriented, and more cost-effective management, as well as more satisfied homeowners and greater board member peace of mind.
In fact, we audit our management relationship regularly, and have changed companies a few times by applying the principles discussed above. But since our last change, we have chosen to remain with our current company for almost 12 years notwithstanding interim comparisons and audits.
The auditing process is one that never really ends, so start evaluating your management company.
Stan Malos is Professor of Management and Human Resources at San Jose State University, and serves as a Director of Judro Manor Homeowners Association, San Jose, CA, a member of ECHO. This article was originally written and published in the ECHO Journal in 1998, updated by the author.