Deciding to engage a community management firm to assist with your HOA or condo association operations is a big step. Strong due diligence on the part of your board members, as well as deep understanding of community management contracts, is critical to choosing the right partner and protecting the best interests of your community and its residents. Staying up-to-date and informed about the law, regulations and contract agreement best practices is critical, regardless if this is your board’s first management contract negotiation or if you’ve decided to find a new partner after a decade or more with the same firm.
In this blog, we’ll provide you with an overview of how to assess different community management proposals you’ll likely encounter during the interview process.
Create a Strong Request for Proposal (RFP) Document
Your board’s ability to properly evaluate incoming proposals starts with a strong RFP document. If you don’t create an effective RFP and fail to articulate what your community is seeking, it makes it very difficult to negotiate and execute a community management contract that will work. What’s more, it will hamper a community management company’s ability to respond specifically to your needs in the proposal phase.
Evaluate Behaviors During the Proposal Process
You and your fellow board members will obviously need to go through any proposal with a fine-toothed-comb, but don’t forget to assess how a management firm candidate behaves during the proposal and pitch process. Are they responsive? Do they appear organized? What representatives have they put on the proposal team? Do they ask good questions? All of these factors matter. You want to see strong customer service, effort, and responsiveness, as this will be a telling sign of the services you will receive once you’ve signed on the dotted line.
Is the Proposal Process Boilerplate or Customized?
To ensure you provide a management company the opportunity to tailor its proposal, make sure you write a strong RFP, as mentioned earlier. If you provide this opportunity, then you can more accurately assess the level of effort put into a management firm’s proposal process.
Some things to consider include whether or not the proposal is a boilerplate template only. Any proposal will have standard sections that don’t change; however, if you find that there is little or no customization in the proposal and few instances that speak directly to your community and its challenges, this should be a red flag. Effort matters. Reflecting an understanding of your needs and what your community is all about also matters. Receiving a purely boilerplate proposal should be a strike against any company seeking your partnership.
Similarly, note if the management company makes a personal visit to your community. Did the leadership come out and meet the board and take a tour? Was the property manager that you’ll actually work with on the day-to-day there as well? Again, what kinds of questions did they ask? Did you feel that they listened to you and made a goodwill effort to make a connection and learn about your neighborhood?
Understand the Size and Number of Properties Under Management
Remember, it’s not just the contract you need to understand; you also need to have some understanding of whether or not the company you choose will value and be able to properly service your account.
If the size and type of your community is atypical for a prospective community management partner, this could be a red flag. For example, if 90% of this company’s portfolio is communities of 300 units or more, and your community has 75 units, this is something to ponder. Will this management company give you the same attention and service as those larger communities? In contrast, if a small community management company has an oversized portfolio, i.e. too many units already on hand to manage or a property manager whose portfolio seems already oversized, the company might want to provide great service but simply can’t due to overextension. Assess the company’s portfolio to find the right match early on. Finding out it’s a mismatch later because you didn’t do your homework could be disastrous.
Understand What You’re Signing Up For
Read the fine print and don’t be afraid to ask tough questions during the selection process. It’s very often the case that you need to look for what’s not included in a proposal/contract in addition to perusing its fine print sections. Simply put, you need to know exactly what you’re getting (or not getting) for your money.
A strong contract should include specific details about the services a company provides and their associated fees. These services could cover day-to-day maintenance and operations, administrative tasks, financial services, and possibly online services. This really depends on what your community outlines in its RFP.
However, it’s essential that you understand that all fee structures are not necessarily created equal. For example, lower fees charged per unit isn’t always a good thing just as a higher per unit fee is not always bad. This is where understanding the fine print comes in. That lower cost per unit might look good on the service, but you might discover after reading the details that there is a host of add-on fees and upcharges buried in the contract that actually make the per unit cost higher than other bidders.
HOA Leader confirms this unfortunate but very real practice: Elizabeth White, a community association lawyer, stated in a recent HOA Leader post, "What I'm seeing are a lot of attempts by management companies to sneak in some add-on fees...there may be a temptation for management companies to come in at a lower monthly rate and recoup some of what they're giving up with add-on fees. They look good when they're submitting a proposal—they're really competitive or lower than other companies—but when you start calculating what they're going to charge, it's not as good as it looks."
Engaging legal counsel to help you uncover these hidden up charges is always advisable. Signing a contract with the lower bidder can--if you’re not careful--result in your community getting “nickel and dimed” into the ground.
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