The ongoing evolution of community associations into true communities requires an even more steadfast grip of the nuances of association management. The following excerpt from the second edition of Community Associations: A Guide to Successful Management, by Vickie Gaskill, CPM, ARM, MPM®, outlines key factors to consider prior to taking on the management of a community association and some of the hazards to avoid along the way.
Reasons Associations Change Management Firms
Knowing the reason an association is looking for professional management can be beneficial to a management company when developing a management portfolio. The board of directors may be dropping existing management for a variety of reasons. Learning the cause of the predecessor’s departure may help in determining whether your company’s management style can overcome those issues or fall into the same dilemma.
Association board members commonly complain that the management company doesn’t do enough to enforce association rules, which are often limited and unclear in the governing documents concerning compliance issues. This leaves the manager and board members open to blame if these issues are not resolved. When researching a community, inquire about its rule enforcement guidelines and if it has an ad-hoc review committee that regularly examines the governing documents and state laws to ensure compliance. This may be an opportunity to lend expertise to the association and assist it in understanding the importance of compliance. On the other hand, it may also be a red flag if the association tends to have a laissez-faire approach to the rules.
A good manager will recognize this problem and recommend resolutions or amendments that will improve enforcement of association rules; however, the professional manager can only be as effective as the association’s governance and board allow. At times, board members may restrict the manager from performing a compliance process, yet they expect the manager to enforce compliance as the association’s documents direct.
If board members are not fair regarding compliance issues and the management firm does not point out or attempt to change the discriminatory action, both may become liable for not implementing the governance as written. If the governing documents are vague or nonexistent, a manager must ensure that the board members act in a reasonable and fair manner when invoking the association’s right to bring an offending member into compliance.
|The new second edition of Community Associations: A Guide to Successful Management, by Vickie Gaskill, CPM, ARM, MPM®, is available now at irembooks.org.|
Board members frequently think management companies do not have adequate control of delinquencies, and in addition to receiving payments, the management firm is charged with collecting delinquent assessments. When beginning the management relationship, the manager must clarify the company’s position on this issue, or it could destroy the goodwill between the board members and management when delinquencies occur. Resolved collection policies are essential for the management company to do its job of collecting delinquencies.
Some states require an agent to be a licensed debt collector to pursue outstanding debts beyond sending a delinquency letter. Debt collection duties are usually turned over to an attorney or a bona fide collection agency. Although most unpaid assessments are automatic liens against a property, delinquent owners can be passive when it comes to paying assessments. Board members can also get frustrated with the time required and the process involved in attempting to collect outstanding debts. Keeping them informed with timely progress and delinquency reports immensely improves the manager’s credibility regarding delinquent assessments.
Financial statements must be timely and easy to read. It’s common for board members to complain that management submits erratic and inaccurate financial reports. Managers all too frequently send complicated operating statements without any prior explanation. Therefore, it’s essential for the management company to explain the differences in cash, modified or accrual statements. Board members, especially the treasurer, do not want to appear uneducated when reading the financial statements to the board or the management firm. Even so, they sometimes report their opinions concerning alleged inaccuracies as well as their difficulties in reading the reports. By establishing a specific time to explain and illustrate the financial statements, the management company can instill confidence and credibility. If the accounting system is flexible, by all means, tailor the association’s books to meet the specific needs of the particular property. Specify the date that the board members will receive the financials, and do not deviate from the schedule without prior notice.
Association Management Pitfalls
When contemplating whether to assume the management of a property, the management company should perform extensive due diligence before moving forward. Common pitfalls are accepting the management of “sick” associations, failing to make site visits and failing to establish a minimum fee structure.
Recognizing “Sick” Associations
Is this property fiscally or physically considered a sick association? Reviewing the current budget in relationship to the association’s asset management performance is important. An association with very little working capital and much necessary capital expense is destined to fail. Recognizing this situation prior to contract commencement, and determining whether the members are willing to make the necessary financial commitment, is crucial to being a successful manager.
No Site Visits
It is extremely important to make a site visit before responding to an RFP. The site may require extensive manager supervision due to its physical attributes or detriments. By miscalculating the administrative time involved, the manager risks underbidding a contract that he or she may not be able to fulfill properly. The association relies on the professional manager’s ability to meet those requirements addressed in the RFP that will ensure their implementation. The manager should not project a fee solely by sitting behind a desk. It’s essential to visit the site.
No Minimum Fee Structure
Previously, managers submitted contract fees that reflected an all-inclusive management service. In those days, the manager was a rather authoritarian agent who made the most of an association’s decisions. In today’s market, with the increasing popularity of common interest developments (CIDs), members and directors take a more hands-on approach to governing their associations. As a result, the manager’s role has changed from that of an authoritarian agent to an advisory agent, offering professional advice and guidance.
Because present-day relationships with associations are more time-consuming, an increasing number of management contracts are calculated with a reasonable base fee structure. Establishing a minimum fee structure is important in order to compensate the firm for expected and unexpected administration duties. If the minimum fee is too low, the manager may jeopardize good management principles in order to make a profit.
Ignoring RFP Traps
Evaluate the RFP for hidden management traps, such as certain responsibilities that could require extensive management time due to the physical nature of the association. Visiting the entire site will eliminate any shortfalls when projecting costs to administer the contract. Another potential trouble area might be the number of physical inspections requested and the number of meetings per year the manager must attend. Confirm that on-site services are to be contracted out to third parties—but not at the manager’s expense. Payroll of any on-site staffing must be clarified. Determine if such employees are employed by the association or the management agent, and if by the agent, determine who pays for the extra payroll burden and taxes.
The most important RFP trap to avoid is failing to have a clear understanding of the respective duties of the manager and the board. Managers all too often begin their duties only to discover that the board members expect more to be done than was originally stated in the RFP. The best way to eliminate this conundrum is to recognize that such misunderstandings can occur. Throughout the RFP response process, discuss and list the specific tasks for which the manager will not be responsible, and question any RFP point that seems vague.