Whether because of convenience, the desire for autonomy, or a tight budget, some condo and HOA communities opt not to retain an outside management company or an agent to handle their respective day-to-day administrative and maintenance needs. Without proper oversight and experience however, the vitality of the building and property – along with the residents who call it home – can face jeopardy.
First Things First
“One of the biggest maintenance-related challenges is simply having a good maintenance schedule in place to identify what needs to be maintained, how is it maintained, and how often is it maintained,” says Peter Miller, principal at the Annapolis, Maryland-based Miller Dodson Associates, Inc., a capital reserve consulting firm. “It is also important for the board of directors to provide an adequate maintenance budget so that these components, systems and facilities can be maintained properly.”
Boards must have a plan in place to deal with disasters – natural or otherwise, adds Miller. “Dramatic events like exploding boilers or roof blow-offs show why we need to have a plan for dealing with disasters,” he says. “But the more frequent occurrences are failing boilers and leaking roofs due to lack of maintenance, or lack of adequate reserve funds for their timely replacement.”
Aside from planning for potential disasters, boards have to stay on top of routine, day-to-day tasks. Regular maintenance of the building’s vitals, along with knowledge of aging components like elevators and roofs, are essential to a successful operation.
“Typically, the largest expenses we see for townhome associations are roofing, building exterior envelope issues, and asphalt – such as parking driveways,” says Robert Nordlund, founder and CEO of the Calabasas, California-based Associations Reserves, Inc. “For multi-story buildings, roofing and asphalt tend to diminish in significance, with interior assets like carpet, hallways, lobbies, common rooms, and major mechanical [elements] like elevators becoming significant.
“Fortunately, these major components deteriorate in a very predictable manner, so an association can become financially prepared for those anticipated expenditures,” continues Nordlund. “Hopefully the association is largely protected from the financial impact of unanticipated expenses, like boilers blowing up or storm damage, because those types of events are hopefully insurable losses.”
Avoiding the Self-Management Blues
On average, self-managed buildings have greater challenges in dealing with emergency and larger compliance-related projects than those that engage a property management company, explains Joel Abreu, managing director for the Bayside, New York-based Total Management NYC.
“The biggest factors are time and trust,” says Abreu. “While day-to-day routines are viewed as work in progress, emergencies are received and treated as ‘no-nonsense, do as we must situations’ that allow no room for error. But often, due to inexperience or urgency, mistakes could be made in the placement of that trust and of the building’s funds.”
Self-managed communities must also be especially careful when engaging contractors or service providers, making certain that they pros they hire are fully licensed, insured, and vetted for professionalism and good service, says Michael Baum, PCAM, president of Baum Property Management, based in Aurora, Illinois. 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.
While there are resources a self-managed community can consult, such as this publication, and organizations like the Community Associations Institute (CAI), there are proven protocols that all self-managed communities should adhere to, especially when dealing with physical maintenance.
“Keep a calendar,” says Abreu. “Do regular walk-throughs with your staff, and implement and double-check your various logs to ensure regular staff inspections, cleanings and deliveries. Communicate, and listen to your staff with regards to various processes, including receipt of maintenance checks and securing party rooms and amenities, and the use of transitional storage areas to streamline and secure building receipts and operations.”
Regardless of whether a co-op, condo, or HOA is self-managed or has hired a management company, Miller says all such communities should have an adequate operations budget that allows for the hiring of professionals who can advise on how best to maintain common components, systems and facilities.
“They should also have a maintenance budget that provides the funds needed to properly maintain their common elements for as long as they can be maintained,” he continues. “And they should have well-planned and adequate replacement reserve funds so that they can replace these common elements when they need replacement. The failures that we see are not just from improper maintenance. Many times, components are kept in service well beyond their normal life simple because there are inadequate funds to replace them.”
In Nordlund’s experience, self-managed properties must have board members who can look at the property and all its moving parts with “fresh eyes.” To this end, board members should view the property like a visitor or prospective buyer might. Too often, he says, self-managed communities get “familiarity blindness” and no longer see deterioration for what it is.
“An outside professional, such as a reserve study professional, can be of great assistance in this area,” he says. “In addition, self-managed communities often make the mistake of deferring projects in their attempt to save money, when frequently, delayed projects actually make the project significantly more expensive due to deferred maintenance and expanded scope of work.”
To avoid potential pitfalls, Miller implores self-managed properties to consult the local chapter of the CAI. The range of educational resources offered is “staggering” and is “growing every year,” he notes. While certain information may serve as reiteration for some, newer community members can gain relatable insights into the operations they’re now responsible for carrying out – “whether it is training in good governance, or seminars on budgeting or the resources and networking opportunities that bring you together with the business partners who can provide the services and/or expertise that you need to properly fulfill your role within the community,” says Miller.
Along with CAI, Abreu encourages self-managed buildings to “get friendly with your insurance agent, and practice diligence in getting all residents – including the management team – to comply. Knowing your limits and coverage can make a difference in cost – preventive versus a Band-Aid or full repair,” he says. “Mailing lists are important, too. Some suppliers and service providers will send you information throughout the year to prepare and remind you of things to be aware of when managing your property.”
Self-Managed Costly Mistakes
Perhaps the most common mistake self-managed properties make is trusting hired staff to do their jobs without proper oversight, says Abreu. This mistake is closely followed by others, like not keeping or reviewing repair records, not maintaining workers compensation for part-time superintendents, or hiring a resident to do important work within the building.
“Management’s job is to ensure that the best professionals are retained to expedite a repair in the shortest time possible, and to assist in limiting the property’s liabilities,” says Abreu. “Management has a world of experts and so-called experts that are vetted, but not every expert is an expert in everything. It’s about separating skill from sales.”
Money in the coffers — a community’s reserve fund — is there for a reason, and should be spent when necessary, adds Abreu. “Structural repairs and equipment upkeep cost money,” he says. “Just like the clothes on your back and the soap you use, there is an expense and depreciation tied to it. Getting stuck on the financials is typically the reason small problems become big ones.”
To avoid potentially costly mistakes, Miller says self-managed properties should treat the building like they treat an automobile. “If you don’t take your car in for required maintenance and servicing, it will break down more frequently. Emergency car service is more expensive than regular maintenance – and when your car has to be replaced sooner because of the lack of maintenance, then the life-cycle cost of that automobile has now sky-rocketed.”
In order for a self-managed property to operate efficiently, certain tasks and responsibilities have to be outsourced to qualified and licensed vendors. But not all jobs require a special skill set, which can save the board some money in the long run.
“Ongoing maintenance is valuable, but those projects capable of being performed in-house are the kind that can be done with common tools, like unclogging roof drains with a snake or putty knife, or touch-up painting of exposed metalwork railing with brushes and paint available at the local hardware store,” says Nordlund.
What minor tasks a self-managed property can handle depends on the board and the capabilities of the person charged with management, as well as the unique needs of the building and its surrounding property.
“Is it more effective to have a maintenance staff member replace fan coil unit filters, or can an outside company do that task more effectively?” questions Miller. “Certainly you don’t want your maintenance staff replacing the roof!”
Without question, Abreu says plumbing and electrical work should always be handled by an outside party. He adds that while doing certain repairs in-house might “lend itself to closer monitoring and control,” hiring outside vendors provide an extra layer of protection should anything go wrong, such as injuries or damage to the property.
“Gathering the proper licenses and insurance for all your vendors versus leaving it under the corporation will help reduce the cost of insurance and permit proper allocation of the time/expense of the work in the budget,” says Abreu.
Self-management is certainly a viable, often preferable route for some buildings and associations, but whether or not it’s a good fit for yours depends on many factors, and how well your board can navigate and make use of available resources.
W.B. King is a freelance writer and regular contributor to The Chicagoland Cooperator.