Most management companies recognize that in this dog-eat-dog world, marketing and advertising are extremely important in order to attract community association clients. In the old days, it was always the cheapest management company that had a leg up on getting the account. Nowadays, community associations tend to be more sophisticated in deciding which management company to hire, not absolutely and solely based on the cost. They look at other factors which, in the final analysis, turn out to be more important, because the old saying that you get what you pay for applies in community association governance, as well as almost every other business setting. I have compiled ten points which should be incorporated into any checklist by a Board of Directors of a community association in choosing what management company they want to hire. They are as follows:
1. What is the general reputation of the management company, and what was the source of referral to the management company?
The source of referral will be important. Did it come from another association? Did it come from someone who has worked with the management company in another site or did it come from direct solicitation? Did it come from the attorney for your association? Keep in mind that it is common for some management companies and attorneys to have developed an understanding that they will exclusively refer business to one another, which certainly does not benefit their association clients. In any case, it is a red flag if the source of the referral pushes hard for any one service provider, as it could signal that they have a vested interest in your decision. Also, no matter what the source of referral, it is also important to try to get a general view, to the extent possible, of what other community association service providers think about that management company; however, you will be doing more in-depth investigation when you follow the other steps in this checklist.
2. Where is the management company located, and who will be servicing your association?
In other words, is the management company within reasonable operational distance from your association so that it can send the necessary personnel and contractors to service your project, and who will be the specific person working with your association? Often, the President of the management company or its best PR person will attend the meeting with the Board, but when the time comes for the management company to service your project, you end up with somebody low on the totem pole who has had just a few months of experience. Or, there may be an experienced manager who is supposedly the lead manager for your account, but most of the work is actually performed by an assistant. Make sure you understand who will be responsible for the day-to-day tasks of management and get that commitment in writing.
3. How many associations does your management company service, and how many associations does each community association manager service?
In other words, does the management company’s allocation of responsibility to its managers allow the managers to handle their sites adequately, or are they understaffed and overburdened with clients so they won’t be able to properly service your association? The answer may be difficult to evaluate for anyone who does not have a good amount of experience in the community association industry, so assistance may be required to weigh these questions.
4. What type of physical office plan and technology does the management company utilize?
It is important that you observe the physical layout of the property management company’s office to see what equipment and processes the management company has in place and to review how they take advantage of available technology, which hopefully will be state-of-the-art in terms of managing the financial and maintenance affairs of your association. Is it a hole in the wall with piles of papers everywhere, or can you observe that everything is well-organized in a modern, clean, well-managed setting? This will tend to correlate with how you can expect your association will be managed.
5. What are the educational accomplishments of the management company and its employees?
Do the management company’s managers have appropriate designations or certifications as a professional property manager with organizations such as the Community Associations Institute and/or the Institute of Real Property Management? Do the managers attend various courses being offered to enhance the operation and management of community associations?
6. Does the management company have adequate insurance to cover errors and omissions, and personal and professional liability?
A lack of these types of insurance may result in damages being pursued against the community association, depending on the specific indemnification clauses in the management agreement. The association should ensure that the management company is adequately insured for all potential losses which it may incur or which may be thrust on the association as a result of the acts or omissions of the management company.
7. Where does the management company bank, and where are its facilities in terms of processing the collection of assessments and the vetting of contractors?
Some management companies have transferred their collection activities to another state, which may make it difficult to keep track of payments being made to the management company by the members of the association. I have also seen situations where centralization of management by a mega management company conglomerate has resulted in serious problems for the operation of the association. Make sure that there are adequate local personnel to deal with collections and that the bank utilized by the management company can timely provide check disbursements when necessary, even though the bank may be located on the other side of the country.
8. How much experience do they offer?
Find out as much as you can about the individual members of the management company, particularly those who will be servicing you, as to where they worked prior to this management company, how much experience they actually have, and, like some lawyers who profess to have experience in community association law, are they literally new kids on the block who have had less than five years’ experience in community association governance?
9. Does the management company understand its role?
Management companies should work for the association, not vice versa. Some management companies try to usurp the authority of a Board that does not want to make any decisions by filling the vacuum of power and undermining the successful operation of the association for the sole benefit of the management company. Other management companies are so tied in with certain vendors and/or lawyers that if there is a dispute between the management company and the association, the lawyer will not pursue the management company. Avoid any such conflict, actual or apparent.
10. Is the contract acceptable?
Make sure that any management company that you consider provides you with a written contract that outlines all of the costs that may be associated with its retention. And show that proposed management agreement to your attorney, who is hopefully independent of the management company. Indeed, it may be appropriate on occasion to have your attorney interview several management companies along with the Board of Directors so that the attorney can ask the right questions and try to sift through the statements of the management company to determine whether they are accurate or simply marketing tools.
Following these ten steps can generally result in the association making the proper choice and, regardless of the outcome, the Board can rest assured that it has performed proper due diligence and exercised sound business judgment.
By Robert M. Meisner