A Guide to Selecting the Right HOA Management Company
Are you a self-managed HOA who wonders what benefit an HOA management company might bring? Or maybe a brand-new board member who’s simply trying to learn everything they can about how HOAs operate?
One question that frequently comes up in our conversations with board members is the role that HOA management companies play in their association’s management.
While board members can theoretically do everything the HOA management company does, it can be difficult when most board members still work, are raising a family, and have vibrant social lives outside of their HOA’s management.
Having the right HOA management company can provide stability and continuity between boards, make the board members’ lives significantly easier, and increase property values and satisfied members.
The right HOA management company will be able to understand your association’s unique needs, will know enough to be knowledgeable advisors in regards to the governing documents’ requirements and the federal, state, and local statutes, and will work with homeowners to resolve compliance issues and other owner complaints.
Put simply, most HOAs have both short-term and long-term goals, and having a management company can help you reach those goals more easily and with less stress.
What is an HOA management company?
Both the HOA board and the HOA management company have the same goal – a well-run HOA – but the role of both is completely different.
An HOA management company is a company that specializes in helping the boards enforce an HOA’s governing documents and facilitates communication between board members and between board members and their homeowners.
While the HOA management company does not have the board’s authority, it can still act at the board’s behest on nearly all matters. Matters that HOA management companies cannot take action on without the board’s prior consent include anything outlined in your state’s legislature.
While each state has its own laws, it’s very typical for states to mandate that only the board has the authority to vote on anything that’s going to change the financial status of the association. Additionally, most states prohibit anything that will change the association’s legal status or liability level. Once the board has made a decision, then it’s the management company’s job to make sure their vision becomes a reality.
Ultimately, the HOA management company does not have the authority to make decisions for the board. Their role is to guide the board in the best way to fulfill their duties, execute the board’s decisions, and keep the association’s records.
What role does the association’s board play with the management company?
While it’s true that the governing documents and the federal, state, and local statutes will dictate the board’s and HOA members’ responsibility to the HOA, the overall role of how a board works with its management company doesn’t change much from state to state.
In order to further understand how the board and management company work together, it may be helpful to take a step back and explain the overall structure of an HOA.
In an HOA, the HOA is run by a group of volunteers who the membership (i.e., the homeowners) select (i.e., the board). The board is responsible for making sure that business items, like billing and amenity and common area maintenance, are taken care of. Another aspect of HOA management is the administration of services, like the collection of dues or arranging for shared services.
Ultimately, it’s the board’s job to oversee these functions and make decisions regarding them. Once you set the policy for the HOA, then it’s the HOA management company’s responsibility to enforce.
Do the homeowners have a role?
A well-running HOA has three main members: the board, who manages the HOA, the management company, who enforces the board’s directives, and the homeowners, who make up the community.
While homeowners do not have a direct role in the management of a community, they still have an important role to play. Paying dues on time and following an association’s rules are two things homeowners can do to make the management of the HOA for both the board and management company easier. In order to facilitate the homeowner’s positive participation, look for a management company that communicates frequently and well with the homeowners.
How to Select the HOA Management Company That’s Right for You:
Remember that not all HOA management companies are created equal. Some specialize in certain aspects of HOA management, and some take a broad approach and cover many different areas.
We recommend you sit down as a board and thoroughly discuss what elements of HOA management are most important to you. Knowing what you want your management company to focus on will determine which direction you should go when selecting your HOA management company.
We’ve also found that finding a company that specializes in your association’s type (e.g., condo, large single-family, small single-family, etc.) is a great way to narrow the field. While you may have success with a jack-of-all-trades community association manager, sometimes they are spread too thin and don’t have the special skills needed for your community. Remember, it’s important to find the right partner for your needs.
Here are some suggestions of things to think about when selecting an HOA management company:
Make sure they provide specific administrative services. Items like responding to homeowners, helping with financial administration, and providing regular management reports are important aspects of HOA management.
One of the biggest weights that hangs over boards is their relationship with their homeowners. If the management company in question does not have a good reputation for responding promptly to homeowner concerns, then you are more likely to deal with dissatisfied homeowners who come to you for help with their HOA needs.
One special advantage an HOA management company has is the ability to bring their expertise when unexpected financial setbacks occur. No matter how well-organized an HOA might be, eventually an unexpected expense is going to occur. In those instances, an HOA management company can not only help reduce the stress associated with the event by handling all the details, they can help you determine the best way to finance the expense and provide guidance on what other budget items can be pushed to make room for the new expense.
Another important element of HOA administrating that management companies can help with our reserve studies. In some states, it’s required by law to update your reserve study yearly. Even if your state doesn’t require yearly reserve studies, getting regular updates to your existing reserve study is still considered a best practice across the industry. The right company will have a process in place to make getting an updated reserve study in place a smooth experience.
HOA management companies will also typically have solid working relationships with reputable vendors, and they will be able to guide you in finding the vendor right for your needs. Fraud, inadequate insurance coverage, and sub-par work are just some of the risks associated with selecting an unqualified vendor.
Gauge the management company’s experience collecting assessment revenue past due accounts. Since each state has laws surrounding how past due accounts should be handled, it’s of utmost importance to ensure you’re working with a company that implements both state and federal law as well as best practices when dealing with delinquent homeowners.
Whoever you choose should be able to demonstrate their process and show a history of success in this area. Be sure your potential association management partner can demonstrate their process and show a history of success in this area. Often these management companies may cost a few more cents per homeowner, but they more than pay for themselves with this service. While association attorneys are necessary, a great management company’s billing department can handle many of your past-due assessment needs without scaring your neighbors by sending the attorney after them. The management process usually costs less than an attorney’s fee, too!
Review the management company’s site management strategy. Site management tends to be a sore spot among homeowners. Site management is the process a management company uses to review the association’s common areas and individual homeowners’ homes for needed updates.
On one hand, home values decrease when uniformity crumbles. For this reason, some homeowners are adamant they want the neighborhood heavily policed. On the other hand, no one enjoys living in a nanny state. As a result, it’s important for the management company to have a strategy that is fair, balanced, and applies equally to all homeowners.
Check their billing and accounting service. This is one of the most crucial aspects of HOA management. Having well-run finances keeps the HOA running smoothly and reduces the HOA’s and your personal liability. Find a link to a horror story of HOA fund mismanagement.
Related: Florida Homeowners’ Association Fraud and Embezzlement Costs Millions
When reviewing a company’s services, ask a few pointed questions regarding accounting. Questions to ask include:
- Who is doing the accounting?
- When should we expect to receive financials?
Well-run association accounting departments will deliver timely financials in the first twenty days of the month (after the previous month closes).
If the manager is also the accountant, this is a red flag, as they may not be trained accountants. Having the manager as the accountant is also a security issue, because having separate bookkeepers gives your association an extra level of scrutiny.
Companies with multiple checks and balances can help prevent fraud or another issue.
Great companies typically have the manager, bookkeeper, and accounting manager review invoices and books to prevent mistakes and watch for indication of fraudulent activity.
Verify the role communication plays between the management company, board members, and the HOA’s members. While HOA management companies are traditionally associated with the enforcement of governing documents, the role they play in consolidating and sharing information is as important. Whether they are acting as the go-between between the vendors and the board or helping to create and disseminate a solid communication strategy alerting homeowners of a coming change, most management companies live and die by their communication skillset.
Communication is a huge part of an effectively operating HOA. You and your fellow board members are volunteers, so having a management company who can do all the heavy lifting frees up valuable time for you to focus on other things that your manager can’t do.
Having a solid communication strategy will also encourage members to become (and stay) engaged with their community. Members who aren’t kept informed of what’s happening in their community, or who don’t have events where they can go to bond with the community at large, are usually more susceptible to feeling dissatisfied with their community.
The right management company can offer your community clarity. It’s important, for example, for homeowners to have a source to go to in order to find information about your community’s rules and regulations that is expressed in a way that is easy to understand.
Confirm that the management company takes its role as a community builder seriously. Community building is an important aspect of HOA life. Even something as simple as having a company that takes encouraging social events seriously can increase homeowner satisfaction tremendously.
While community building is everyone’s responsibility, it is especially important for the HOA management company to support the board in their community-building efforts. While this could be its own post, here are a few ideas to keep in mind for building great communities:
- Remember that, at its core, community building is the practice of creating and improving the feeling of community among individuals within a group who share common interests or needs. Knowing what community building is will help you determine whether or not your current strategy or scheduled events will help or hinder your desire to create a close-knit community.
- Focus on building your community around ideas (i.e., interests). Ideas to consider are events centered on fixing problems, connecting over shared experiences, encouraging “niche” groups to get together (knitting groups, woodworking clubs, etc.)
- Don’t be afraid to try new things and new strategies! It’s possible that your first few ideas won’t have the desired effect that you’re hoping for. That’s okay! The most important element of community building is consistency.
We recommend asking your prospects questions regarding their stance on what community building is, how they recommend orienting the community’s events, and how often they think the community, ideally, should host events. Asking the right questions will help you determine if you and the management company are on the same page regarding community building.
Ascertain how experienced their legal team is with weighty management issues. One of the biggest benefits associated with partnering with a management company is the legal expertise they bring to your association’s practices. While they are not association attorneys, a great HOA manager has a breadth of experience and can point you to an attorney only as necessary.
Self-managed associations and less experienced managers often spend too much on legal fees because they don’t have the experience and perspective to help you solve problems without legal advice.
However, association attorneys can be your greatest asset, and in many instances turning to them for counsel is the only prudent option. Your new company should be able to help you navigate these decisions.
Is there anything else I should be aware of as I begin to partner with an HOA management community?
While we’ve already covered most of the issues that will affect the day-to-day governance of your community, there are a few growing trends in the HOA industry that you should be aware of.
Since you are partnering with an HOA management company largely for their expertise, we recommend taking their recommendations on some of these growing topics seriously.
Trends HOA management companies are encouraging:
More and more HOA management companies are encouraging their boards to embrace the green lifestyle. Whether it’s more gardens, solar panels, compost piles, or some other green technology, more boards are initiating changes to the governing documents, partially in response to their HOA management’s recommendations.
More extensive board education and training. HOA management companies are an important resource for boards to lean on. Their guidance helps the HOA run more smoothly.
However, HOA management companies are beginning to realize that board members who have a working knowledge of the industry are more likely to feel empowered when making decisions.
On the flip side, while an HOA management company can bring you peace of mind when running your HOA, there has been a shift over the last few years in how boards view their management companies.
More and more, boards are wanting to be educated on the ins and outs of association management, so they can stay apprised better. Despite the benefits associated with having a management company, many boards want to have a working knowledge of HOA management.
That’s where we come in! We’ve partnered with management companies in order to bring you the very best HOA training. You never have to take what your manager says at face value!
Is self-managing an option?
Self-managed HOAs are HOAs in which the board members do all the administrative work of an HOA. The main reason most boards are interested in self-managing is to reduce the financial burden associated with professional management.
Depending on how big the community is, how many amenities exist, or other factors, it can be incredibly challenging for 3-5 volunteers to manage all aspects of HOA administration alone.
So, how do you know if self-managing is right for you? Consider self-managing if your community:
- Has fewer than 10 residences (the fewer, the better).
- You don’t mind serving as the bill collector and the rule monitor for your neighbors.
- You can ensure that all the amenities shared use areas are well-maintained. A solid maintenance plan for these areas includes making sure they are safe and properly insured.
- You have plenty of volunteers in your community. While many communities struggle with a lack of participation, some communities have many hands who are willing to help out daily to get the work of a management company done.
- You have volunteers who have all the right skillsets for what a self-managed community needs. Important needs include the ability to understand legal matters, insurance, liability concerns, maintenance, billing, accounting, and how to communicate productively with homeowners who may feel frustrated.
We recommend going with a management company even if your community meets all the conditions above for the following reasons:
Boards can be held liable if any mismanagement occurs under the board’s reign.
While it’s hard to determine what your level of risk is without knowing your specific situation, having a management company alleviates most of the liability concerns that can befall board members.
Management companies also bring associations anonymity in rule enforcement.
This isn’t to say that your residents will never know who their site driver or community manager is, but having your paid community representative tell your neighbor that it’s time to mow their lawn feels very different than you telling your neighbor that it’s time to mow their lawn.
You will have more legal resources. It’s crucial for the HOA to have representation for contract disputes, collections, etc. A reputable management company will have a legal staff and who can walk you through many of the legal concerns that might befall an HOA.
Ultimately, the benefit of having the right management company offsets the cost associated with professional management.
How do we go about selecting the right management company?
While following the above tips will help your board select the HOA management company that best reflects your community’s needs, we have a couple of additional suggestions on how to navigate the actual selection process:
Make sure you have checked your governing documents to ensure that you are allowed to hire a management company. We recommend always checking your governing documents before making any major change to your HOA’s day-to-day operations. It’s an industry best practice, and it will save you a lot of potential future headaches.
Select two or three property management companies that meet your criteria. Interview them thoroughly and then check their references. We strongly encourage you to talk to other HOAs who have been managed by them.
Once you’ve selected your management company, you’re ready to begin your partnership!
How can we get the relationship off on the right foot?
The best way to make sure the relationship goes well is to select a management company whose services and values align well with your needs and values.
In order to keep the relationship from going sour, it’s important to set expectations early on any matter you think you and the association manager are not on the same page on.
Finally, if the management company does not meet your expectations in some way, it’s better to let them know when you first realize there is a problem, rather than waiting until it’s an emergency situation or waiting until a lot of ill will has built up between the board and association manager.
Utilizing an HOA management company will help ensure that the people in your community are taken care of and that your HOA runs like a well-oiled machine.
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