Understanding How a Property Management Company Works for You

Understanding How a Property Management Company Works for You
By Kevin Wiley and Richard Thompson

In a perfect world, a homeowners association and its management company should be a valued partnership.  Property Managers fully understand their HOA partner.  But few HOAs fully understand their management company.  So, here’s a primer into the world of an HOA management company:

Homeowner association management companies work by contract for a “fixed” monthly fee.  But just how is that fee computed?  Few management companies have detailed time reporting systems to calculate costs accurately. But, in fact, a management company sells its time and the more time spent on your homeowner association business, the greater the cost.  The management fee is often an educated estimate of what it’s going to take to manage your account and still make a profit.

So what goes into the management fee?  There are fixed overhead costs like rent, computers, phones, copier, insurance…the standard modern office expenses.  Then, there are labor costs which vary according to how many associations are managed and the time needed to handle each account.  Then there is a funny notion called “profit”.  Total fixed and labor costs plus profit margin divided by the total number of units managed yields the company’s average charge “per door” fee.  In San Francisco, the average is between $40-$60 “per door” per month.  Smaller communities will pay more and larger communities will pay less than this.  Urban communities will pay more than suburban.  It’s simply more expensive to do business in The City.

Typically, a management company will assign a Portfolio Manager, an accounts payable and an accounts receivable accountant, various administrative support staff (reception, copy, emergency dispatch) and an administrative assistant to the account. All will handle multiple associations.  The Portfolio Manager may handle 5-7 associations, the administrative assistant may be shared by two managers and may handle 10-14, the bookkeepers may handle 14-20.

The salaries, benefits, taxes and expenses of these people are allocated to the associations they manage and support.  Staff costs are directly related to how many associations the staff manages.  The more associations they can handle, the more cost efficient and, theoretically, the cheaper for you.  The industry-wide problem arises when the management company overloads the staff in an attempt to maximize profits, reducing their efforts into a falling house of cards.

The salary levels of the staff have a major impact on the management fees.  If an association wants truly experienced professionals, there is a price to be paid.  A professional association manager should attend seminars, have professional designations and focus exclusively on this form of management.  This is one of the most challenging forms of management there is and a jack-of-all-trades just won’t do.  A successful management company will retain staff and have low turnover, acting as a stabilizer for its clients.  The association will also benefit when its management company commits to proper training and experience.  Expect to pay accordingly.

Managers spend sometimes as much as 50% of their time preparing for and following up on Board Meetings.  For a typical Board meeting, the manager gathers the information and prepares a management report, reviews the financial statement, attaches relevant correspondence, puts Board packets together and delivers them to individual directors. That could leave just 50% of the total schedule for inspections, supervising contractors, responding to owners, processing collections, reviewing contracts and other important things a manager is supposed to be doing.

Most Board meetings are held on weekday evenings at the community so the manager is required to work after hours and travel, both of which cost the association money. (It’s built into the contract.) After the meeting, the manager usually has a laundry list to follow up on that occupies most of the following week. A manager can easily spend from 15 to 20 hours on pre and post Board meeting related business.

What can you do to reduce management costs?

•Limit Board Meetings to 2 hours. Rarely will more time be needed and if a deadline is known, the agenda will get done. Less talk, more action.

•Hold daytime, weekday meetings to avoid manager overtime costs.

•Move Board Meetings to the management office to save manager travel time and mileage.

•Reduce Number of Meetings. With a good budget and management plan, the manager should be able to handle most issues with only occasional input from the Board.  Quarterly meeting should be the goal.

•Let the Manager manage. Board micromanagement duplicates effort and inevitably runs up costs. If your management company is incompetent, get a new one. If qualified, let it do its job. This may be your single biggest cost saver.

•Insurance Claims. Insurance claims can take many hours of a manager’s time. If the management agreement specifically states that insurance claim work is an extra cost to the association (key component), the management company can bill the insurance company for the time it takes to administrate a claim.

•Collection Activity. Management time for involved collections should be billed to and recouped from the delinquent owner whenever possible.

•Disclosure Information. Manager time and costs to compile disclosure information for owner home sales should be charged to the requesting owners.

These are but a few ways that management costs can be trimmed. Be sensitive to your manager’s time and don’t pile on unnecessary tasks that ultimately will increase the cost. While it’s important to get what you pay for it’s equally important to pay for what you get. Sit down with your management company annually to count the cost and work together to improve your partnership.

There are many facets to this profession, including managing the infrastructure and finances of the properties, acting as the point person and liaison for the association, while servicing the needs of the board of directors, homeowners, contractors, attorneys, CPAs and insurance agencies.  It is a necessity that a property manager and the company he/she works for be current with applicable California Civil Code, Corporations Code, municipal, county, state and Federal Fair Housing laws and practices.

Please browse our website to learn more about our company, our many services, and our commitment to excellence in this industry. At CitiScape, you can always expect professional management, personal service.

 

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