EVALUATE THE MANAGEMENT FIRM BEFORE YOU HIRE THE FIRM!
By Jan Bergemann on CCFJ
Published October 12, 2012
My two fellow bloggers described how to evaluate the manager already under contract in order to decide whether or not to renew the contract. That surely is important once you are dealing with a management firm.
In my opinion that is often much too late, because many problems could have been avoided, if the board members had done their homework and checked out the firm before signing the contract.
Here is a list of red flags that should serve as a warning when checking out a new management firm:
- Make sure that the association money stays at a local bank. More and more management companies work with banks outside the state.
- Make sure that no money can be moved by the management company without the signature of minimum one authorized board member – if you even want to consider giving the management company signature rights.
- Make sure that the company you hire is only a licensed community association management company, not an umbrella company with many other service providers working under different names. (Arizona does not license management companies).
- Make sure that the management firm has employees with serious accounting experience, not just a simple CAM license.
- Make sure the contract states all costs including monthly fees, without lots of “extras” listed in small print on the subsequent pages.
- Make sure that the management firm doesn’t have the right to contact the association attorney without prior approval by the board.
- Make sure there isn’t a “hidden” provision in the contract that forces the association to pay for the legal defense of the CAM if somebody files a complaint. It can get really expensive, as we have seen in many cases.
- Make sure that the board approves any past due account before it goes to collection.
- Make sure you check the references and talk with owners – not necessarily board members – in the communities the manager lists as references.
There is a lot more that board members should do before signing on the dotted line. And since some association groups are now “hiding” complaints filed against managers you might want to GOOGLE the name of the manager/firm. Believe me, you find interesting articles in most cases. Always remember:
Many CAM contracts are tricky! Considering the fact that you may find the monthly fee listed on the first page, you think you have the facts. With many contracts that’s not the case, because on subsequent pages you will find “extra charges” – for all kinds of things. And that can add up quickly. Many firms charge, for example, for writing “violation” letters, written without prior approval of the board. I have seen cases where the extra charges were a lot higher than the basic monthly fee.
Other CAM firms lure boards with very low bids, asking for very low basic monthly fees. These are often firms that will later try to steer boards to sign contracts with affiliated service providers/contractors that are part of their corporation, even if they list different names. Beware of that “trick”!
Most of all: Watch your association money. Make sure your money is in a local bank, meaning a bank where board members have access to it and are able to make changes. It’s not so much about possible embezzlement – even if we have seen quite a lot of such cases – it’s about a management company taking its own pay from the account, often before the board even sees the monthly bill. And we have seen quite a lot of cases where management companies helped themselves to money from the account after their contract was terminated. The “final” bill was just outrageous – and was deducted from the association account before even mailing the final bill to the association.
Never forget: The name MANAGEMENT says it all. A management company should help with the actual tasks, as directed by the board. A manager should help to steer boards in the right direction, but not “run” the show. Managers are just that: Managers who work under the direction and supervision of the board. Board members should never forget that!
If you evaluate a management company before you hire the company, you may save your association a lot of headaches – or worse.
As a new owner and recently elected Board member I have for several months been requesting the management company to provide a copy of the contract established with the HOA – without success. The previous Board members (who seemingly established a contract) have already resigned/sold up and are no longer contactable. I am novice to the functioning of HOA and Boards and the other Board members appear to have little knowledge or experience either.
Furthermore, I recently received the three-month financial reporting and am unable to verify since I am unable to ascertain what were the agreed monthly administrative fees? The monthly charges were increased by 15 per cent and am concerned about large amounts charged for ‘services’ which are difficult to identify.
Could you kindly advise how to proceed in clarifying these issues. If the Management company cannot or will provide the contract what recourse do I have.
Thank you for any assistance
I would suggest the Board put the management company on notice for contract termination if they do not provide a copy of the contract and any requested financial records. The management company is a vendor and it is the Board’s responsibility to management their performance. You may also check the state statutes to see if they provide any support.