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A look at the available options of management types community associations can choose from.
When a community association is first built, the developer does all the work, from incorporating the association to creating the governing documents to the daily management of the community. As a community approaches the point where more homes in the community are owned by homeowners than owned by the developer, the community goes through ‘Turnover’, where the management of the association is transitioned from the developer to the homeowners’ elected representatives on the board of directors.
Often, newly turned over HOAs keep the management team put in place by the developer, but at some point, every community association board has a discussion about their management options to decide what is right for their community.
Community association boards of directors have a lot of options when it comes to how the everyday management of the community will be run. To make the right decision of a management type for your community, it helps to know your options
Full-Service Management
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For most community associations, full-service management from a specialized Condo/HOA management company offers the best option to maintain the operation of the community.
Who does what?
With the full-service management type, the management company is directed by the board of directors. So the board makes the decisions that affect the community, and the management company carries out those decisions. The management company takes on all of the tasks needed to run the association including accounting, enforcement, communications, vendor management, project management, etc.
What kinds of communities manage this way?
For mid-size to large associations over 100 units, full-service management is the most common management option.
What are the upsides of full-service management?
With full-service management, your community gains the benefit of a professional management team well experienced in running a successful community association. Your manager can provide advice to the board when handling difficult situations and can apply their knowledge and expertise to make sure the community runs like a well-oiled machine. The back-office accounting team provides accurate and transparent financials and also takes on a customer service role when dealing with homeowner accounting questions. This provides continuity of services in the community as volunteer Board members come and go. With a good management company in place, owners receive a high level of service without interruptions.
What are the downsides of full-service management?
Full-service management does not mean hands-off management. The board still needs to be actively involved in the management of the community both in the form of oversight and in making decisions on the community’s behalf. Most community associations who are dissatisfied with their management company get this way because they did not stay actively involved.
Full-service management can have added costs. Your board will negotiate a contract to decide what service options you need, and the management company will set your price accordingly. While you may add additional services at any time, you will need to pay for them, so watch out for the extra charge on your bill for the extra 3 hours when your contract specifies a 1-hour board meeting.
Professionally Self-Managed (aka Executive Management)
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In a professionally self-managed community, the board hires a professional manager directly. This person may live on the property as an on-site manager, or they may work as a 9 to 5 employee. In cases of very large communities, the manager may have an entire team under them, consisting of assistant managers, inspectors, accounting staff, reception, and maintenance staff. This role is often referred to as an executive manager.
Who does what?
In an executive management type, the board takes on the role of an employer, so they are responsible for the oversight and management of the manager (or management team), who in turn, takes on the day-to-day tasks of managing the community, such as doing inspections, communicating with homeowners, managing maintenance and other vendor contracts, and advising the board in board meetings. Accounting functions may also be handled by the manager, or they may be outsourced.
What kinds of communities manage this way?
A direct-hire professional manager is often used by luxury buildings and larger community associations who can afford to pay for the full-time services of a professional management team.
What are the upsides of professional self-management?
Professional self-management is all about control. The board of directors has complete control over every aspect of the manager and the management process. The community also benefits from the fact that they have 100% of the manager’s time and attention.
What are the downsides of professional self-management?
Frequently, hiring a dedicated full-time manager is more expensive than a full-service management company, since the management company can spread its costs among its clients.
However, the biggest problems that we have seen with professionally self-managed communities arise from the fact that the manager is also a direct employee:
- There is no relief for the community if the manager is out sick or becomes overwhelmed.
- The manager is in a vacuum, not being exposed to other managers and ideas. It is critically important in this type of self-management to ensure the manager attends industry events, law reviews, and training seminars to stay updated on changes affecting the industry.
- The board is responsible for all of the tasks an employer would take on, such as training, managing schedules, and oversight which may turn into more work than they initially expected.
- The advisory capacity of the manager may also be negatively affected. It’s hard for any employee to challenge their employer and say “No, that’s wrong.” but this is a task that managers frequently have to do when advising the board.
Self-Management Hybrid: Outsourced Accounting
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Some communities choose to have volunteers do the day to day management tasks, but they opt to hire an outside accountant to manage the finances for the community. This hybrid method of self-management type can help to provide a check and balance to ensure that the community stays on course, and keeps the management side accountable.
Who does what?
With an outsourced accounting plan, the board hires a management company or accounting firm to do all of the accounting practices for the association. This includes invoicing and statements, managing owner balances, processing payments, collections, taxes, budgeting, and possibly investments. The accountant does not have any responsibility when it comes to the day to day management of the association, so you may need to negotiate how to handle fines and fees that are not part of regular assessments.
This leaves a lot of tasks on the ‘To Do’ list for the volunteer board, such as rules enforcement, maintenance, vendor management, project management, and communications.
What kinds of communities manage this way?
Mid-sized and smaller communities in the 50-300 unit range may choose this method of self-management as a way to cut costs and keep assessments lower.
What are the upsides of outsourcing accounting for your HOA?
- Outsourcing accounting for the community association can be cheaper than full-service management services.
- Obviously, with professional accounting, the community benefits from good bookkeeping, with clear financial statements and accurate financial analysis.
- The accountant will also ensure that the community keeps up with taxes and other legal considerations.
- Outsourcing your accounting can also help reduce the need for owner communications by providing homeowners with an online portal to track their payments and customer support for accounting related issues.
What are the downfalls of outsourcing accounting for your HOA?
An outsourced accountant is not directly involved in the running of the community association. So while they can work as a check and balance for the management side, if the accountant doesn’t know what to look for, or is not vigilant, they can miss things. This is why, if you do choose to outsource your accounting, you should choose a company experienced with community association accounting.
A second danger with an outsourced accountant is that they are not advising you on how your money is spent, only tracking it. So issues that full-service management would typically take care of, such as managing vendor contracts, helping to prevent the need for special assessments, or even making sure your accounting practices are in alignment with your governing documents fall to the Board to do instead.
Fully Self-Managed: Volunteer-Run
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A self-managed community that is volunteer-run is exactly what the name implies. The board of directors and/or board-appointed committees take on all the tasks of running the community association.
Who does what?
From soup to nuts, the association is run by volunteers. That includes all accounting, maintenance, vendor management, project management, rules enforcement, communications, the works.
What kinds of communities manage this way?
Small communities under 50 units often choose this option as a means to save money.
What are the upsides of self-management?
Communities choose full self-management for the cost benefits. If nobody is getting paid to do the work, you can pass those cost savings to the entire community in the form of lower assessments.
What are the downsides of self-management?
Managing a community is a LOT of work. Even with software to help ease the burden and spreading the workload across the entire board, you’re still asking volunteers to take on someone’s full-time job. Many communities that aren’t willing to invest in a professional management company are also not willing to buy adequate software to do the job right. And since nobody is getting paid for the work they are doing, their incentive to ‘cross all the T’s and dot all the I’s’ doesn’t really exist. While the initial board that decides to go self-managed may be highly motivated, the same group won’t be on the board forever – meaning, there is no continuity of services. Your community may be excellent one year and in the dumps with the next group of volunteers. Keep this in mind when making your decision.
One of the hidden costs of this form of self-management is the fact that the board members are not trained or certified in community association management. As such, the knowledge that a professional manager brings to the table is lacking. This can lead to the board making poor decisions, or even turning to the community’s lawyers to give advice more frequently, which can carry a very high price tag.
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Are you a Utah Community Association looking for a management company that can take on your accounting or full-service management needs? Take advantage of this free strategic evaluation to see if HOA Strategies is a good fit for your community.
