How To Choose Condo Management
by Benny L. Kass
Question. Our community association is brand new. The developer has just "turned over" control to the owners and I am the new Board President.
Although we like the current property manager, many of my fellow Board members believe that since that manager was brought in by the developer, we should select someone who will be loyal and responsible to us. What criteria should we use in selecting a management firm? What services should the company perform? Should we have a written contract and if so, for how long? What is the appropriate interaction between the board and the management company and its employees?
Answer. To a large extent, the success of any community association rests with its management. I do not necessarily agree that the management company brought in by the developer can not be loyal to you, but there certainly is a possibility of a conflict of interest -- especially if your new Board starts to have problems with the developer. Thus, it probably makes sense to hire a new company.
While some condominium associations prefer to be "self-managed," in my opinion this is not the way to go. Even if a self-managed board has a full-time, paid manager, the members of the Board of Directors still have to get involved in the day-to-day operations -- and often these Boards of Directors do not have the time (nor the skills) to handle the task.
Whether your association consists of 4 units or 400, it is -- or should be conducted as -- a business. The Board of Directors has the responsibility to act reasonably and properly. The Board has to make good business judgements. And one of these judgments is to avoid getting involved in every single detail of the association. Too often, I have heard property managers complain that the President is trying to "micro-manage" the association.
A well-run Association should hire a management company and delegate major responsibilities to it. In many instances, however, the Board over-delegates -- but under-supervises -- and the results turn out to be unsatisfactory for the owners as well as the management company.
How do you select a management company? Contact four to six management companies and ask them to send you bid proposals. These proposals should list the names of other community associations they currently manage so you can check references.
The Board should appoint a management company selection committee. It is important that the President or Vice President of those other condominium associations be contacted to determine whether they are satisfied with their management company.
Price alone should not be the determining factor on whether to hire a particular management company. If the cost is low but the quality and quantity of services are equally low, you will only "get what you pay for."
You should determine whether there will be an on-site manager, and if so who will it be. When you are interviewing the various management companies, you should insist that the person selected to be your on-site manager be present at the interview. You can hire the best company in town, but their success will depend on the abilities and performance of that on-site person.
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Ask how many hours that manager will devote to your project. Will he or she be responsible for other associations as well as yours? If so, how many?
Obviously, if you are a small association, you will probably have to accept the fact that the manager will be working with other associations at the same time.
Ask whether the management company is a member of the Community Associations Institute (CAI), a national organization dedicated to the workings of community associations. Do the managers actively participate in the many educational programs conducted by CAI?
According to one commentator on condominium activities, association management typically involves at least nine areas of responsibility:
1. Environmental standards
2. The maintenance of common properties
3. The provision of common services
4. Internal communications
5. Financial management
6. General administration
7. The procurement of insurance
8. The preparation of tax returns and other reports
9. Assistance to the Board of Directors on policy matters.
Once a management company has been selected, a written contract must be signed between the company and your association. All terms and conditions -- including fees and charges -- should be incorporated in that written document.
Your association attorney should assist with the negotiations and drafting (or reviewing) of the contract.
Once the new management company is on board, the Board should assign one (but not more than two) members of the Board to be the liaison with the management company. The liaison should also be responsible for issuing periodic status reports to the Board on the activities of the new management company. This is a form of quality control, which is important in any business operation.
A competent management company should furnish biweekly or monthly management reports consisting of a current financial statement (including any outstanding delinquencies), the services performed during the past reporting period, and any problem areas and future planning issues for consideration by the Board. This report must be given to each Board member for their review.
The Board should meet periodically with the company to review these reports and program future activities for the association.
I recommend that at least once a year the Board should request the management company to prepare a brief "state of the Association" report, which should be made available not only to Board members, but also to all owners in the association.
After the Board receives this report, it should be in a position to evaluate the management company based on its past practices.
If you and your Board are dissatisfied with your management company, you should first give them an opportunity to explain their actions and make any corrections, if possible. Your management contract should contain clear provisions for termination of the relationship. Generally, most contracts provide that the contract can be terminated by either side without cause by giving 60 days written notice, and 30 days termination for cause.
Delegation of authority is perhaps the most significant aspect of the relationship between the management company and the board of directors. Once you hire a management company, the Board should delegate responsibilities to that company and not get involved in the day-to-day activities of the association.
If Board members want to get involved, they should manage the Association themselves -- which I do not recommend. Learning to delegate is difficult but not impossible.
After the management company is in place, ask it for periodic feedback as to whether the Board is getting too deeply involved in management functions. Your management company should be able to give you an honest assessment.