A productive, collaborative relationship between board and community management is one of the linchpins of any successful condo association or homeowners’ association; it truly is all about teamwork. But if your team isn’t working, it may be time to change management companies. Even if it’s for the better, that transition can be tough, and sometimes costly – not only for the board, but for the entire community.
Since board members are generally volunteers, merely making the decision to hire a new and different management company can be daunting. Is there a formula to guarantee a successful change? Are there guidelines to ensure a move in the right direction? What information should a prospective management company provide before the contracts are signed? What red flags should communities keep an eye out for? Where does the search process begin?
Begin at the Beginning
When it’s clear that a change in management is in the best interests of a given community, the best place to start is often a Q&A exchange right at home with the board. Each board member must understand the problems with the current firm, and what improvements are expected from switching to a new one. It’s also important to ask if the problem represents a personality conflict between the board and the individual community manager. If a different manager within the same company might communicate better and work with the board more effectively, change may be accomplished more quickly and seamlessly by simply switching out the manager, rather than engaging a whole different company.
Beyond that, asking the five “W’s”—who, what, when, where, and why—can identify whether the problem runs deeper than a single management person. By identifying the areas where problems have occurred, and the individuals involved, a board can develop a better idea of what is working, and what must change.
If you’re looking to part ways with your management and don’t want to wait until the contract is up for renewal, it’s a good idea to have your association’s attorney review the current contract early in the information-gathering process to determine the best way to legally separate from the company, and to identify areas for positive legal change. When a decision is made on a new management firm, your attorney should again be consulted for a review of the new contract and documents before anything is signed; typically, there will be a lot of due diligence in between these two reviews. Spending sufficient time on the search is the only way to determine the overall best course of action for your community. While board members may argue the expense of involving an attorney, legal counsel can spot more costly pitfalls.
Work the Details
Eva Segerblom, a community law attorney with Maddox, Segerblom & Canepa in Reno, says: “Bigger is not always better —so don’t be afraid to consider or interview smaller management companies, or even solo practices. Smaller and/or solo managers are sometimes a better fit. Also, don’t be afraid to revise the management’s standard contract. Form contracts are not ‘one-size-fits-all’ – every association is unique, and your management contract should reflect that. The most important thing is meeting and managing expectations on both sides – you may need to interview a new potential manager multiple times to be sure they are a good fit for your association. Check their references. Ask to see a list of their most recent continuing education for the past year.”
David Baron is President of Metro Management Development, Inc., in Long Island City, New York. His firm manages associations, rental apartments, and condo association buildings. He is direct with any board looking to change management firms. “Check their internal controls, after-hours protocols, and any additional fees that may be assessed beyond the base fee,” he says. He recommends a board go further than the usual reference check and speak with auditors and attorneys who service the condo association and association industry to find a good fit for its specific property needs. “Due diligence and background checks require time and effort.”
What a Prospective Manager Should Ask You
Typically, there are a few questions a potential managing agent should ask boards and associations looking to make a change in order to ascertain whether or not the manager or firm and the association will be a good fit. Perhaps the most telling for a potential manager is what does the prospective client community like about its current management firm, and what would they like to improve?
Information-gathering goes both ways with this approach, and it may help define goals and expectations. For its part, a board should ask a prospective firm about any affiliation it has with other companies, as well as its policy and capabilities when it comes to things like accounting and preventive maintenance. Some boards may prefer a management company with in-house maintenance specialists or a short list of approved vendors, viewing these types of arrangements as a way to save time, dollars and effort, while others may feel that such relationships run the risk of conflicting interests. It is an individual board preference, but regardless, the process by which a manager or firm retains services and vendors on behalf of their client communities should be transparent.
A board should also ask who keeps the books—such as an accountant—and what system of checks and balances is in place. Other important questions pertain to certification and assisting in and/or passing an audit, and a board should expect company-wide standards for preventive maintenance programs. Another important consideration for the prospective management firm is whether a building or association has easily accessible document templates and a repository of standard forms in a community ‘toolbox’ to prevent having to reinvent the wheel (and risk problems with inconsistency) for every issue that comes up.
When seeking new management, boards should also inquire about the number of employees a management company has, how many separate properties a given manager is assigned, and whether the manager’s client communities will be notified if that workload increases. Boards should want to know if an agent will be assigned to their specific property, and how many times that person will visit, inspect, and perform functions such as bookkeeping, and/or supply reports. Sometimes it’s necessary to think a little bit more out of the box. Organization, follow-up, and responsiveness are the most important things to look for in a management company.
According to the pros, boards should also ask whether managers for the firm hold scheduled office hours, and whether those hours will be held on site. If an association opts to hire a portfolio management firm, the community manager may have to oversee numerous properties, limiting the on-site time and attention available for your community. So don’t assume – ask! Community management firms are as varied as the properties they manage. Deciding what services a community expects to pay for is part of the overall selection process. When the board or committee has established expectations from a new firm, the budget can define what is affordable and possible.
Another area on which boards must focus involves state, city and federal laws/restrictions, also called ‘asset management.’ Laws and regulations can change – and if a management firm fails to keep abreast of these changes, resulting in its client communities incurring violations and fines, a property’s assets can greatly diminish. A proactive, conscientious community management firm will keep the board apprised when changes to laws and regulations require corrective action.
Attorney Martin S. Kera, a principal with New York City-based firm Kera & Graubard, says that in his experience, the interview process with a new management firm starts with reasons the property is seeking a change. “The usual replies range from ‘The agent is non-responsive to our requests,’ and ‘We don’t get financial statements,’” he explains, to unacceptable fee hikes, and even management companies suddenly going out of business, or – worst of all – embezzling funds from their clients.
After the initial interview, Kera suggests calling the manager assigned to your account and see how quickly they respond. Do you have to deal with excessive voicemail or menu prompts? The larger firms often have different agents assigned to different duties—one writes checks, while another will deal with construction or monthly payments. The board should decide whether it will be okay with navigating this arrangement on a regular basis, or whether it would prefer to have more of a one-stop shop kind of dynamic.
“A small management company has everyone servicing all the accounts—and that may better serve your interest,” says Kera. “The number one concern of most residents and board members is how fast their managing agent responds to their emails or phone calls and building needs.”
Red Flags and Deal Breakers
When proper due diligence is finished and details are fully explored, the experts all recommend a few additional questions to prevent buyer’s remorse or unwelcome surprises. Two important areas that Kera finds overlooked by boards are construction and closing procedures. Closings and mortgage refinances are a big issue. When you refinance, the banks usually have questionnaires – and managers who respond slowly (while incurring additional fees) are frustrating. “The board should also ask how the managing agent handles major construction projects and routine projects,” says Kera.
Finally, before anyone signs on the bottom line, it’s imperative to have your building or community association’s attorney review all documents and proposals one last time for any errors or oversights. If the hiring committee and/or the board have taken sufficient time and effort, hopefully it will be a long while before another change is necessary.
A.J. Sidransky is a staff writer for The Nevada Cooperator, and a published novelist.