We often urge readers facing all manner of issues in dealing with the day-to-day operation of their condominium, cooperative or homeowner’s association to consult with a trusted, professional property manager. The best and brightest of these pros will guide a board and assume responsibility over a great deal of a community's well-being, alleviating some pressure from the volunteers who dedicate their free time to the association while also juggling their own personal and professional affairs. A competent, responsive property manager is worth his or her weight in gold to an association, be it large or small, urban or suburban, cash-strapped or wealthy.
If that's the case, then why would a community opt to run their associations in-house, with the board assuming the full weight of governance, administration, and day-to-day chores? That seems crazy, right? Maybe so—but communities that choose to self-manage have sound reasons for doing so. Whether they just feel they have the time and expertise, they've had bad experiences with outside management in the past, they're a small enough operation that the lifting isn't as heavy, or it might just be as a cost-saving measure, certain boards do choose to self-manage, for better or worse.
Of course, some boards and associations are better suited for self-management than others. And any board considering a step away from professional, off-site management should be aware of some basic tenets of the job before diving in headfirst. We've put together a primer that will help you decide if your association is the strong and independent type, or one that would be best served via outside consultation.
One of the first things that needs be assessed when considering self-management is sheer feasibility, and the dominant factor in determining that is size. A condominium with eight or nine units by its very nature will have a much easier time keeping track of day-to-day business than a 446-unit behemoth. In some cases (and in particular places), a smaller association may actually have a harder time even finding professional management, and thus going it alone may be the most readily accessible option.
“If you're a seven-unit condominium, trying to get someone to come in and professionally manage you could be difficult; you may not be able to find a service, and it may not be cost-efficient,” says Charles A. Perkins, Jr., a senior partner at the law firm of Perkins & Anctil in Westford, Massachusetts. “Now, certainly, if you're in that situation, you can do things to protect yourselves. You can hire a company that's going to at least go over your books, records and checks, just to keep that in order and act as a second set of eyes.”
The budget of an association is directly proportional to its size, as all owners contribute to the community's bottom line. So the decision to self-manage rather than work with an outside professional tends to be much more a financial call than an administrative one. “You'll rarely, if ever, see a self-managed high-rise,” notes Howard S. Dakoff, a partner in the Community Associations Practice Group of Levenfeld Pearlstein, LLC, a law firm with offices in Chicago and Northbrook, Illinois. “But you will see 10- or 15- or 20-unit buildings self-managing. And it's usually an economic decision, rather than driven by the personalities and background of the board members, as it tends to be a hodgepodge of people who get elected. Skill set occasionally plays into it, but sometimes the owners have to vote for the only people who've expressed interest.”
And, as one might expect for someone in his line of work, David L. Ferullo, CPA, a senior audit partner with the The Curchin Group, LLC, a certified public accounting firm in Red Bank, New Jersey, really hammers home the need for self-managed communities to have someone (or several people) with financial experience on the board. “There's no way around it,” Ferullo insists. “The board is now preparing the budget in lieu of the management company. Also, when you prepare a budget, you need to get bids from various suppliers and vendors, and that's a time-consuming thing.”
Of course, just because your association is of the right size to keep itself upright and solvent without professional management does not mean that it will do so successfully without checking other requisite boxes. Outside of having the aforementioned financial whizzes on the board, there are other indicators that your association may be better equipped than others to handle the challenge of self-management. Of course, whether your association even has access to these assets can sometimes be an issue of luck more than anything else.
“Are certain personalities more beneficial to self-management? Sure,” says Dakoff. “People who are professional, exhibit leadership qualities, who may have some experience managing not-for-profit corporations... all of those traits are helpful. The problem is that I don't know that the community at a ten-unit property has the liberty to hold out for the perfect personalities for the job. They're just hoping to find four or five people who will volunteer at any given time.”
“I find that some 55-and-older communities are good at carving out the time to manage their associations,” says Perkins. “The problem you can find even in those situations, however, is that the functionality becomes dependent on a certain core group. And when that group starts to change, whether due to board members moving away, or just opting to step down, if you can't find equally competent people to substitute in, you're going to have problems.”
When asked to lay out what traits make for the best odds of successful self-management, Ferullo responds as follows: “You need an active and involved community wherein people are committed to deadlines, understand time constraints, and can deal with unit owners. In my near-40 years in the business, I've attended a number of board meetings where owners screamed at the board, and the board members screamed back. A good board member can handle getting screamed at without getting rattled. If a board's going to self-manage, its members need the people skills to deal with both each other and residents.”
“Again, you need a board that can understand the financial process: keeping records, preparing the budget, etc.,” Ferullo continues. “The board needs to know how to find vendors and suppliers, as well as how to negotiate a reasonable contract with them. And you can't have one board member who knows everything about one particular issue, like accounting. You need people surrounding that expert who are savvy enough to act as checks and balances.”
It's worth reiterating that self-management of even a smaller multifamily community is A LOT to take on. A board attempting such a herculean task stands the risk of alienating its constituents, or in a worst-case scenario, bankrupting the association, in which event there's nowhere else to point the finger but inward.
For one thing, more often than not, property management services offer clients a 24/7 hotline to call with questions, concerns, or emergency issues, which the manager will address as soon as possible. When the manager lives a few doors down from the proverbial complainant, this becomes somewhat more problematic. And again, the smaller your association, the more likely you are to succeed as a wholly independent entity. “I have a handful of small self-managed communities that meet the minimum four times per year and just get it done,” notes Dakoff. “And even if they do things that are not perfectly compliant with all procedural requirements, nobody is complaining. They see it as just the way business has been done for 10, 20 years. They're going to keep doing what they've been doing until they get caught slipping up somehow, at which point they'll contact an attorney, find out what the law is, or of what they'd been in violation, and do it the right way going forth.”
Even diverting from a management company to a solo practitioner can reveal some kinks in the managerial armor. “I had a high-rise association with a management company that ultimately hired their specific individual manager to represent them, and hired an accountant to handle their assessment accounting analysis,” recalls Dakoff. “Ultimately, the association realized that one individual lacked the resources and relationships of an entire company. The benefit of hiring an entire organization was to have that organization's resources at their disposal, which became evident when the association faltered despite retaining the same manager. With a company, accounting is handled in-house, you have relationships with vendors, you get better pricing, you know who to call when something goes awry. It's unwise to call a general handyman service for all construction issues, for example. Sometimes the cost savings of self-managing, or even paring back management, requires a board to spend more time doing minutiae that they hadn't realized their management company had even been doing.”
But while the above may work on a basic level, it truly does not sound like the best way to run a community, especially if an association is ostensibly keeping an eye on maintaining or raising property value. If you can allocate the bare minimum to hire an independent manager, it seems as if it's in the interest of both board and residents to do so.
If your building or association is committed to self-manage or unable to see an alternative, it's crucial that your board stay abreast of the needs of your residents, take heed of the advice above, and implement everything you learned from time spent working with a property management organization, if there ever was one. And take advantage of resources both local and online if you feel backed up against a wall.
“If you're going to self-manage, it's imperative to stay active in CAI or another trade organization that's going to help you stay educated,” urges Perkins. Publications like this one are another powerful tool, as is attending trade events like The Chicagoland Cooperator's two annual Expos (www.ilexpo.com), where any and every service, vendor and professional needed to run a successful co-op, condo or HOA are all gathered in one place to answer questions, distribute information, and help boards make a hard job easier.
Mike Odenthal is a staff writer for The Chicagoland Cooperator.