The Challenges of a Self-managed Association.

 

By: Pedro Garcia CAM, CMCA, AMS

Affinity Management Services

 

Community Associations are governed by a Board of Directors, and the primary role of the Board is to conduct the business of the association in the best interest of the community as a whole. In carrying out this crucial role, decisions are being made that will affect the well-being of the community and all the homeowners. One key decision is whether the Board should not only conduct governance, but also conduct day to day operations normally tasked to a licensed property manager. Any Board considering a self-managed approach should consider these important factors:

Cost Factor

The primary motivation and most frequent reason that may be considered an advantage for self-managing is cost. Simply put – everything costs money, and management is a service no different than the professional services the association depends on from its attorney, CPA, or insurance agent. As perplexing as it may seem, the cost factor is not burdensome and usually only makes up a very small percentage of the homeowner’s regular monthly fee. The cost savings is certainly not equal to the value of all the Board’s time that will now expand from decision making to actual working hours, and the slew of issues that it will face. What is found is that when a Board makes this decision it is a result of not being satisfied with a management company relationship that has not met their expectations, has not added value to the relationship, or simply has not performed as promised.

Time to Volunteer

When initially considering the idea of self-management it may seem simple, and there could be an apparent abundance of potential volunteers. However, very quickly reality starts setting in and everyone realizes the main problem… almost everyone already has a career, spouse, kids, and a variety of personal issues to attend to called life. The burden of serving on the Board in a governance role is alone very time consuming, without now adding the very significant amount of time that will need to be dedicated physically to property issues, homeowners, employees, and vendors. It takes an enormous amount of time for volunteer board members to operate the association on their own.

Training

For a Board considering self-management it may not seem as a significant barrier to the knowledge needed to operate the association. However, after closer consideration one would realize that the knowledge of one individual manager or the content of the licensing course alone does not encompass the wealth of knowledge required to successfully operate the association. When the Board operates without the benefits of industry knowledge and experience it simply falls victim to many eventualities as a result of what it doesn’t know. These include a few things such as compliance with federal, state, and local laws; the accounting requirements and process; budgeting and financial planning; reserves planning and funding; vendor compliance and proper bidding; properly handling meetings from notification to minutes; or handling homeowner issues: estoppels, resident applications, account disputes, or delinquency collection. A quality management company will have an internal training program for its managers. While not all company employees should be expected to have advanced certifications, the leaders of the company that direct policy, execute operations, and set cultural norms should certainly have an advanced understanding of the profession that will translate to improved operational results.

Records

A self- managed association may not have the necessary resources, training, procedures, time, or professional mandate to ensure its record keeping is compliant. All too often self-managed associations find themselves with no real accounting reports, meeting minutes, election records, or homeowner account

ledgers. Besides facing a huge risk of state fines, there are clear operational impediments. A few examples of these are:

1. Not being able to satisfy an official records request from homeowner, or not having a history of consistent source of information to determine decisions in similar situations in the past
2. Not having an accurate understanding of financial conditions, thereby leading to poor decision making or setting false expectations to homeowners
3. Not being able to provide supporting documents to validate a delinquent homeowner debt such a copy of the budgets, minutes, for said meeting and accurate account ledgers
4. Inability to resolve vendor issues relating to payment, services rendered, or scope of work
5. Creating a great deal of friction when a new Board takes over, or having serious gap for proper continuity of operations

Compliance – Don’t Make these Mistakes

The issue of compliance should be a major concern when considering a self-managed approach to the operations of the association. There are plenty of incidents in the industry of self-managed properties that for different reasons commit serious compliance infractions such as:

1. Working with vendors that do not have the appropriate licensing and insurance
2. Charging homeowners, the wrong amount when compared to the governing documents
3. Regularly and casually conducting association business without an actual meeting or meeting notification. Not handling annual meetings, elections, or special assessments correctly pursuant to the governing documents or applicable laws,
4. Not submitting the annual IRS tax filing, or not preparing the required annual financial reports
5. Not maintain financial records in the correct accounting method and a misuse of the petty cash account

Human Resources

As soon as the Board decides to become self-managed, any employee working at the property become its responsibility. This translates to dealing with hiring, training, performance counseling, termination, wage disputes, etc. Additionally, as an employer the association now has a role that risks additional liabilities such as work place accidents, wrongful termination suits, sexual harassment claims, and discrimination allegations. A quality management company will have a proactive human resource component, ongoing training for sensitive issues, and serve as the employer of record and carry insurance to respond to any employee related challenge.

Manage your Vendors

It is not strange to find that some associations have suffered for up to three years in crucial projects such as a forty-year certification. Whether it’s a major project or routine services, a self-managed Board will face challenges if its vendor selection methods are not professionally objective. It could easily find itself the target of theft or kick back accusations. Additionally, a poor vendor selection process will create false expectations for the Board and homeowners and only lead to a change in the vendor and prolong the project. A quality management company will have the time, training, and resources to establish a consistent scope of work, properly vet the vendor, and negotiate a contract beneficial to the association.

When a Board truly considers the factors involved in self-managing a community association it will find the road riddled with problems. The Board will find that its time is better invested in the act of governance where it can set a clear direction and policy for the community. Hiring the right management company will ensure the day to day tasks are executed to accomplish the Boards vision and goals, so it meets the Board’s expectations, and continuously adds value to the relationship.

 

For more information or a free consultation on being professionally managed, please contact Info@ManagedbyAffinity.com