While the majority of condo buildings and HOA communities choose to partner with professional management firms to provide guidance and counseling and oversee their day-to-day operations, other boards take the reins themselves and choose self-management. While there are certainly advantages to going the self-managed route, there are also challenges. But with the right preparation and commitment, this large and sometimes intimidating undertaking can be navigated successfully.
Why Go Solo?
Why choose the path less traveled? Sometimes it comes down to the size of the community. “Typically, smaller associations self-manage to save the fees associated with professional management,” says Cheryl Murphy, executive director of the Community Associations Institute–Illinois (CAI-IL) chapter, based in Schaumburg.
“I see it a lot for smaller associations because it is more difficult to find cost-effective management,” says Brad L. Schneider CPA and president of Elmhurst-based CondoCPA. That being said, larger buildings may also find reasons to go it alone. “I also see it when there is a larger association with a highly qualified on-site manager, if they do not feel there is much added value obtained from the management company,” says Schneider.
“The biggest benefit I've found after working with self-managed associations is cost,” agrees attorney Charles T. VanderVennet, whose practice is in Arlington Heights. “However, the associations that decide to [self-manage] must really be willing to put in the time and labor that management would do for an association in order to save that money.”
Another upside is less tangible. “I believe that condos and HOAs are an outstanding example of a ‘We the people, by the people’ approach as envisioned by our founding fathers,” says Michael Baum, PCAM, president of Baum Property Management, based in Aurora. “I absolutely love the concept of like-minded individuals banding together in a community to create the living environment that they prefer. I believe that the roots of common interest communities can be found in the Utopian ideas in the late 1800s and communal living concepts.”
While it can certainly be a lot of added work and commitment for the elected leaders of the condo or homeowners association, there are some definite pluses that accompany the decision. “It could lead to greater involvement by owners who have a stake in the well-being of the building,” says Schneider.
It can be a good fit, too, when members of the community have certain skill sets and experiences to share, for the good of the cause. “Sometimes the owners have experienced professionals within their ranks who have addressed some issues facing their association, such as qualified engineers for capital projects or accountants and/or bankers when it comes to handling the operations and investing of the association,” says Schneider.
While there are lots of good reasons why a community might opt to self-manage, there are some criteria that should be applied beforehand to determine if a building or HOA is really a good candidate for self-management. According to industry pros, the ideal candidate for self-management has an involved, competent board (plus non-board resident owners) available and willing to substitute their volunteer time for that of a paid full-service managing agent. The building must also have a good engineer or custodian and back-up staff who are skilled, responsive, and professional. The building or development must be in good physical shape, and have good security. Perhaps most importantly, says one management consultant, “Strong finances are critical; over 70 percent of the units should be owner-occupied and the reserve fund should equal one to two months' maintenance fees...there should be no assessments, and no chronic arrearage owners.” Lastly, the ideal candidate for self-management should be a mostly harmonious, close-knit community without a history of intra-building litigation, neighor-vs-neighbor disputes, or other serious conflicts.
If your building or association doesn't meet those criteria, chances are a full-service manager probably makes more economic and practical sense than trying to go it alone.
Say your association does fit the criteria above. Even so, and as much as self-management may appeal, there are some inherent challenges that may arise by going without professional guidance. “The downside (of self-management) is that they lose the knowledge, experience and economies of scale that a professional management company can offer,” says Murphy.
“Common interest communities,” says Baum, “are complicated corporations with substantial assets that always should be run by professionals. In most cases, folks get burned out, and it eventually becomes difficult to attract volunteers to run the business side of the association. It is rare that a board self-manages for more than 10 years.”
In addition to burnout, self-managed communities may also suffer from “a lack of buying power,” notes Baum. Professional management firms are usually able to secure better prices than self-managed community representatives because “professional management firms have much deeper ‘pools’ of professionals to secure bids from.” He adds that many communities choose self-management in order to save money on management fees. Often, though, those firms are able to provide savings that outweigh those management fees, making better fiscal sense in the long-term.
Other common pitfalls of self-management focus on a potential lack of experience by the individuals in charge. The biggest mistakes Baum sees are “lack of qualified bids, and lack of specialized bids—especially with common area insurance and a lack of open meetings.”
In addition, he often sees “underfunded reserves” because “self-management associations often do not use reserve studies.” When those large capital projects come due, there can be trouble as residents find themselves faced with an unexpected financial burden of a special assessment.
Self-managed communities also must ensure that a healthy system of checks and balances exists, especially when it comes to finances, says Schneider. Theft is more likely when people are not watching, he adds. “Many smaller associations have the treasurer approving bills for payment, and often they are the only check signer,” he says. “I would try to have some segregation of duties and also consider two signers on the checks that are written. They can also outsource the accounting to an accounting firm.”
Finding Help Along the Way
That idea of outsourcing is an important one for board members and volunteers working in the trenches. Without years of experience, the challenges of managing can be justifiably daunting, a burden made all the heavier by the fact that this is the place where they, their families, friends and neighbors live and call home.
A wealth of specialized resources is available though. Just because a community is self-managed does not mean they cannot turn to outside guidance and advice on a regular basis. A number of services are available “a la carte” for communities looking for guidance, as are educational opportunities.
Monthly accounting help is available, says Schneider, something his firm provides to a broad range of communities. In addition, “board minute write-up services, independent energy brokerage, engineering services, reserve studies and FHA approval assistance service,” are all also available, he says.
When it comes to matters of accounting, the services available are far ranging. Schneider’s firm offers standard monthly accounting, free lockbox and automated downloads of daily cash received to the accounting software. They also provide ACH for automated monthly unit owner payments and a website for owners to see their history and make payments as well as for volunteer leadership to send out mass emails to owners and post items to be seen only by board members or unit owners. The firm also offers emergency messaging to owners via cell phone, email or answering service.
To help with bill pay and keeping expenses low, they also can provide an independent energy assessment as well as an automated accounts payable lock box for volunteer leaders to see, approve and pay invoices online. Often, management firms will offer those individualized services as well. Baum’s firm provides bookkeeping services.
In addition, organizations such as CAI provide valuable guidance and education as well. “It is important for a self-managed association to seek out and absorb as much information as they can about association living and management,” says Murphy. “There are webinars, seminars, conferences and meet up groups to help associations educate themselves.”
CAI offers significant education opportunities for board members and managers. “This education is applicable to self-managed associations as well as professionally managed associations,” Murphy says. “CAI offers upwards of 60 programs each year, focusing on various aspects of managing associations. Formatting—i.e., in person seminars, webinars, large and small discussions, panel Q&As—location and topics rotate so that attendees have access to the right information at the right time in the right location.”
The most important element in choosing self-management is to understand the pitfalls and challenges and weigh them against the potential benefits, especially in larger communities. “Due to economies of scale, the larger an association, the more difficult it can be to self-manage,” says Murphy. “Professional management companies have systems, software and staff in place to efficiently process fees and paperwork. They also have exposure to experience business partners who can guide the association with legal matters and maintenance projects.”
For buildings and associations that choose to fly solo, it can be done and done well, especially in smaller communities. With proper communication and support among residents and volunteer leaders as well as a willingness to learn, the challenges of self-management can be met. Remember to never be afraid to ask questions or seek help when needed.
Certainly, the idea of friends and neighbors building a community just for them and living with the well-being of their neighbors in mind is an appealing one. And it is a good feeling to know that if anything does go wrong or if the volunteer corps gets overwhelmed, there is always a safety net available in the form of professional property management.
Liz Lent is a freelance writer and a frequent contributor to The Chicagoland Cooperator.