Investigating Split or Hybrid Management for HOAs and Condos

All too often, we hear homeowners express dissatisfaction with how their HOA or Condo is being managed.  Whether they are 100% self-managed, or working with a full-service “comprehensive” management company, there are lots of complaints. This article examines both of these options and discusses a third option that is growing in popularity: obtaining coordinated, sophisticated service from a best of breed approach also known as “split” or “hybrid” management.  

 

Traditional Community Management: A Challenging Model

 

Russell: Over the sixteen years of growing a full management company I would ask prospects why are you looking to change?  The two dominant answers were: 

1. A lack of responsive service /responsive communication, and 
2. There are critical inaccuracies in the accounting/ they lost trust in the accounting of association funds.

Steve: Feedback from volunteer leaders and reflection on my own experience serving multiple Board terms in two different communities is that many service providers operate based on the model that the best customers are the ones who ask the fewest questions.

Lack of responsiveness and accounting errors are typically due to management companies viewing customer service as an overhead cost that drains profitability. So typically, there is not enough customer service or accounting staff to do a good job (let alone a great one).  

Quite often, a portfolio Community Association Manager (CAM) is the primary (or only) customer service provider and is saddled with a virtually unlimited number of deliverables.  Conversely, best of breed companies view customer service, bookkeeping, management and other deliverables as their core business which helps drive their success.  

Many management companies are started by a manager who is great with people and physical management, but who lacks the expertise and desire to hire, train and supervise accounting personnel since it is not their core competency.  I once talked with a CAM who said “I could hire a staff accountant but how would I know if they were doing things right?  I don’t know accounting well enough.”

Similarly, the CAM may not have the time or desire to efficiently implement and integrate software systems because most days are consumed putting out fires and attending to the next urgent task. Configuring and learning how to use software often requires a considerable investment of time. More time and money spent on technological efficiencies is often viewed as a loss of profitable time providing add-on services that come with a cost above and beyond the base management contract.

 

 

Portfolio management companies often experience high staff turnover because underwhelming pay cannot adequately compensate CAMs who are forced to juggle between 5 and 25 unique community associations and dozens, if not hundreds of points of contact every month.  

The tendency to overload CAMs increases profit for management companies while simultaneously degrading customer service and client ROI / service value. An emergency at one client often leads to reduced or nonexistent service at others. Likewise, a larger, more profitable client receives more attention which leaves less time to provide even adequate service across the rest of a CAM’s portfolio. 

Upon the eventual departure of a CAM, 2-week notice (or none at all) leaves management companies scrambling to fill vacancies with new hires who come without any specific training or experience as managers, community association homeowners and/or Board volunteers. Continuity and historical perspective quickly leaves the property through the revolving door of CAM and management company changes, lack of consistent processes, lack of technological prowess and not least of all by the regular cadence of new Board volunteers.

Community associations often struggle to properly engage their management company and CAM.  The following excerpt from Ken Harer’s 2019 Condo Law Handbook is a quintessential summary:

…I have also counseled many clients who were unhappy with their manager’s performance that they can, and should, change managers or management companies to get better performance, but they have been unwilling to consider a change, and were unwilling to even express their dissatisfaction with the manger because of concerns that a change would cost more money, or would be disruptive to the community. Even if you don’t want to change managers, providing constructive feedback to your manager, or asking them to modify their conduct to better meet your needs, should be a routine part of the relationship between a Board and its manager.

Perhaps most notably, community associations lose valuable time working through transitions that are the inevitable “way out” of poor management and vendor relationships. Lost time puts all projects – especially larger and more complicated projects – on hold and might even result in the abandonment of small projects that never see the light of day.

 

Self-Management: Hard to Handle

 

Self Management has its benefits but also has its shortcomings. Varying levels of volunteerism often means that a minority of the Board contribute a majority of the heavy lifting which can lead to “permanent” board positions and burnout. Self-managed associations may be less connected to resources, processes and technology that can help avoid reinventing the wheel. Homeowners who want a way out may need to sell their home.

More difficult projects, often maintenance or capital improvement projects, cost the Board more time and slows down community progress on anything else. (This is also an issue with Boards working with a Manager).  

More difficult projects may not get done to a market standard – let alone high standards.  I have heard numerous boards who went it alone, or had an ill-equipped manager, to manage a roofing contractor (lowest bidder) only to have to spend the money a second time to fix the roof correctly. Boards are dependent on having volunteers with critical expertise.  If you don’t have a “unicorn” professional, licensed project manager, structural engineer or architect on your Board you risk having a subpar result or worse continuing problems after the project is completed. 

 

 

The Impact of Inadequate Software on HOA and Condo Board Operations

 

Next, the lack of industry focused accounting and management software makes day-to-day operations more time-consuming.  I have met Boards who have made elaborate spreadsheets and even created  air tables from scratch for tracking violations – but this is a large investment in time versus using an “off the shelf” system designed to make Board operations easier. 

Later, when the Board member who created these things steps down, will there be adequate support or training for the new Board member to use these tools?

Oftentimes, a self-managed HOA or condo Board using spreadsheets, checkbooks and sometimes QuickBooks (read the limitations of using QuickBooks for your Condo or HOA) will have poor accounting practices, such as: 

• Financial reports are not completed in a timely way by the Treasurer. 
• The Treasurer may not answer questions in a timely manner. 
• You may encounter a lack of transparency with regard to expenses, i.e. only one person with the checkbook deciding to pay for things without consent or an approved budget. 
• Board members may not be signers on the bank accounts, have visibility of the bank accounts, transactions or statements or see a reconciliation report that proves what is in the bank account matches what is on the bank statements. 
• Next, the community may lose money by not having a good process for collecting delinquent owner fees.  

This is a lot of work for a volunteer and too many details to track manually. Unfortunately, the  lack of poor systems, internal controls, transparency, and responsiveness to homeowner and Board members can lead to mistrust – which is a terrible position to be in when you see your neighbors.  As stated earlier, this is one of the two primary reasons why new Boards make a change in management options, the other being responsive service.

Lastly, the Board may not be complying with state statutes. Most of these issues revolve around collections, providing access to information, or resale and refinance questionnaires.  These create additional liability for Board members to be concerned about.

 

Benefits of Splitting Up the Work

 

Management companies naturally like to think that they are both capable managers AND capable bookkeepers.  Every business, large and small, requires goods and services from third party vendors. Most businesses develop departments and acquire goods and services from different vendors based on separate practice areas: bookkeeping, construction, legal, marketing, sales, technology, etc. 

The typical community association industry model sees a single management company provide multiple services that would otherwise be delegated to multiple vendors in nearly all other business verticals. Unlike in medicine, where a family doctor routinely provides referrals to physicians who specialize in various body systems, management companies are incentivized to handle as many needs as possible on their own. Supplemental business lines such as project management or maintenance are substantially accretive to profit as compared to baseline management that comprise a flat fee monthly services agreement.

Bifurcating the most fundamental duties of bookkeeping and management makes a world of difference for both community association clients and for the companies providing the service.  CAMs typically serve as the sole point of contact for virtually every question.  The bifurcated service model directs bookkeeping questions and bookkeeping adjacent services – budgets, special assessments, etc. –  to a dedicated service manager.  While CAMs still act to liaise as needed with the professional bookkeeping service, they have fewer emails, phone calls and meetings to handle related to finance allowing them to focus on coordinating the remaining workload.  Clients benefit from greater responsiveness, checks-and-balances inherent with independent bookkeeping, and from continuity in the form of a bookkeeping relationship that remains consistent if or when the manager or management company changes.

Playing people to their natural strengths also improves communication.  Someone who is unsure of or doesn’t like accounting will not call you back to discuss accounting as it may open them up to being discovered as being weak in that area. Whereas, a person that loves accounting will call you back and discuss accounting.  A manager that loves fixing problems and knows administrative protocols like the back of their hand will call you back to talk about fixing a leak somewhere or how to conduct an annual meeting.  

Some managers prefer to have a smaller operation, they like the manager role but don’t necessarily want to grow a larger business.  However, working with an accounting partner allows them some scale to help more communities by not spending time on the accounting and being able to do more of what they love. There are a good and growing number of managers where dividing up the work this way is their business model.

The accounting or bookkeeping firm specializing in HOAs and Condos invests time and money into integrating systems and training their staff on how to use those systems.  Then homeowners, Board members and the Manager get to log in and work in a software suite that should provide all community accounting and operations tools in one place.

Another benefit of splitting up the work is if it doesn’t work out with either the accounting or the manager you are working with it is not as much change, you keep some historical perspective and if you keep the accounting in place there is no change to homeowners that routinely have to change where they login and how they make payments every time you switch full management providers..

If your community is self-managing you don’t have to go it alone.  You can divide up the work and hire someone to take off the monthly accounting work and or use a consulting manager to fill in the knowledge gaps.  You can expertise and do the more challenging projects at a higher level.  No matter what, you should have great expectations of your management company!

 

What About the Cost?

 

Of course, nothing is cheaper than 100% self-management, as volunteers are free. Certainly, while self-managing your HOA or Condo with volunteers is cost-free, it may carry hidden costs in the form of potentially poor outcomes. The cost of uncollected delinquent owner fees, maintenance issues that go unresolved create more damage and cost more later, and capital projects that don’t get done correctly are just a few examples. There is a high cost for poor service.

For Full Management the cost depends on your community’s size and where you are located.  I hear from a lot of communities that their manager doesn’t do much; although they work with a management company they feel they are self-managing but paying the manager. Depending on the ability of the management company or the assigned manager you can have the same service problems cited above as self-management does.

When the Board doesn’t have the time, or a key volunteer (such as the Treasurer or a construction expert) moves away, it may be time to bring in some outside resources.

The community will have a separate agreement with the accounting firm and/or a consulting manager so it is clear who is responsible for which duties.

The monthly Accounting work is typically priced on a fixed monthly fee for the agreed upon number of activities.  A consulting Manager will usually charge an hourly consulting fee and either a monthly bill or a flat monthly fee for a group of tasks, with a fee for additional “out of scope” work.  Both will typically offer a menu of “a la carte” additional services.

Split or Hybrid Management can cost you less or cost more, depending on the services you choose:

• Save money if the Board does more and just uses the consulting manager for things they cannot do themselves
• Approximately the same cost if you replace a full management offering with a split management offering.
• Costs more if you are upgrading service (so it’s not an apples-to-apples comparison

 

How Can I Find Accounting Services, Consultants, or Managers Willing to Help?

 

Firstly, you can ask other service providers you use. Ask the CPA that prepares your tax return or performs your audit, your community’s attorney, your insurance agent, or other vendors that work on your property.  They may be working with another community using either a consulting manager and a separate accounting service.  If you are working with a financial manager or consulting manager they may know of a resource as well.

Contact your local Community Associations Institute (CAI) chapter and see if there are consultants or accounting/ financial managers listed in the service provider directory or look up member directory, then reach out to some managers and ask them.  Also you can call and ask the CAI chapter office staff if they know of any financial managers, independent managers or consultants they would like to recommend.  

For accounting services you can also google: “Financial Management Service for HOAs and Condominiums” and see what comes up in your search.  

Next Steps:

• Look at the online ratings and read the reviews
• Provide information for a quote, then review and ask questions 
• Set up an online meeting to do a question and answer
• For a financial management company, explore the systems they use and demo videos.
• Discuss your findings at a Board meeting

By taking these steps, you should be able to find a solution that fits your desired outcome whether it’s saving time, improving service, improving results or all of the above.

Steve and I encourage your Board to try the split management or hybrid management model.  If what you have tried in the past, or are currently doing, isn’t working for you it could be the right time to try something new so you can experience different outcomes and better results this year.

 

 

Russell Munz is a Licensed Community Association Manager (CAM) in 6 states, holds the Certified Manager or Community Associations (CMCA) designation, and is the Founder and CEO of Community Financials a financial management company that provides monthly accounting and remote services to HOAs and condo communities nationwide.  

Steve Horvath has been an active part of the Seattle condominium community for over a decade as a multi-term Board member and Committee volunteer, and is the founder of Condo Connection and co-founder of HOA United where he actively volunteers as both a local and national homeowner advocate. The SMAARTE Group consulting services are the culmination of a fifteen year tenure in healthcare IT combined with a keen interest in common interest property ownership and thousands of community association volunteer service hours at the micro and macro levels.