3 Mistakes Board Members Make When Hiring an HOA Management Company

 When it comes to managing your association, the volunteer board may find that that it's too time consuming or difficult with all of your other responsibilities. After all, many board members have families, careers, and other life issues that will all take precedent over their HOA duties.

An HOA management company can help reduce this burden. However, it's important to keep in mind it is not a magic pill that will cure all of the problems.

Many board members rush into making a decision and hiring a company because they're burned out, cannot get volunteers, and just don't have enough time to volunteer as much as they would like.

Or maybe the board has already hired a management company, and they're tired of the unsatisfactory performance, and so they want to replace them.

It is important to understand that hiring the right management company can have major consequences and lasting impacts on your community. It is best to avoid knee jerk reactions and to perform proper due diligence before making a major decision.

Here are the top 3 mistakes board members make when hiring an HOA management company:

Making Knee-Jerk Decisions

We understand there may be certain situations in your HOA that are causing frustrations. It could be lack of volunteers, delinquent owners not paying their dues, numerous violations, or financial strain on the community.

Over the years, we've spoken with many board members are frustrated and just ready to walk away and they want to hire a company to take over. Unfortunately, that's not exactly how this process works. A management company will not make all of your problems disappear, and at the end of the day, there are things that your board will be responsible for.

There may be times when a board member needs to inspect a property to report back to the manager, meet with a vendor, or meet with owners over violation hearings. While a property manager may be able to help in some of these situations, there are still functions that require a board member's authorization or participation. The management company cannot make decisions on behalf of the board. It is only their job to advise the board.

It is common for board members and even homeowners  to have misconceptions about the responsibilities of a management company. We recently posted an article about this which you can read here.

Not Reading the Contract Terms Carefully

Another common mistake is not reading the contract terms thoroughly. Unfortunately, it is common practice in our industry for companies to bury hidden fees or one-side terms in the contract.

Take your time and read through the contract and be sure to ask questions to make sure you fully understand it. At Numerus, we schedule time with each potential client to review the contract in its entirety to make sure everyone understands the terms. We also strive to write the contract in simple terms.

Make sure you understand what services are provided with your standard monthly fee and which services are additional.

It's also important to check for your contract termination requirements. It is common practice to have a 30, 60, or even a 90 day cancellation requirement. However, pay attention to how the paragraph is worded.

"The association may terminate this contract by providing a written notice no less than 90 days prior to the end of the current term."

It's easy to glance over this with "90" sticking out and thinking that there is a 90 day term. However, after careful reading, you'll notice that the association is required to give a 90 day notice before the end of term, which means the association must stick with the contract for the entire 12 month term.

A better wording would be, "Either party may cancel this agreement at any time by providing a notice in writing to other party at least 60 days in advance of the termination."

This is a much better termination clause because it's equitable for both parties and the association is able to terminate simply by providing a 60 day notice to terminate.

Also, be on the lookout for automatic renewals. While evergreen contracts, or auto renewing contracts, are standard, you need pay attention to the terms. If you have terms similar to our first example (90 days prior to the end of the term), then the association would likely be stuck for another year unless they provide a notice 90 days prior to the end of the term.

However, if the association can terminate at any time (with a proper written notice), then an auto renewal contract is perfectly OK and means you do not have to sign a new contract every year.

Lastly, pay attention to the total term of the contract. Management contracts are typically year-to-year. However, the management company or the association may elect to do a two or three year agreement. These longer contracts provide little benefit to the association unless the management company is offering a concession on their pricing or guaranteeing no rate increase in exchange for a guaranteed term. Regardless of the situation, proceed with caution.

Not Planning for Additional Expenses

This mostly applies to associations that are hiring a management company for the first time. However, it's still important to perform your due diligence and check for additional expenses. If the association has never had a management company, then the new expense will need to be added to the budget. If the assessments are going to increase, then there may be a chance that the association has to vote to approve the budget and fee increase.

When building your budget, make sure to include additional line items for administrative fees and other one-off charges that may happen from time-to-time during the duration of your engagement with your management company.  For some "back of the napkin" math, we recommend taking your base management fee, multiplying it a 30%, and then using that for administrative expenses if you're hiring a local management company. With Numerus, we recommend 15-20% because our fees are almost always lower when compared to local HOA management companies!

It's important to take proper precautions whether your hiring a management company for the very first time or participating in an RFP to replace your current provider. Make sure to read everything carefully and make sure you understand exactly what is being promised and what is actually on the contract.

If your board is looking for a new company or is considering hiring a company for the first time, contact us today contact us today for more information and a free quote!