Hiring a Management Company for a Small HOA - What's best for your community?
When it comes to hiring a management company for your homeowners association, there are many factors the board needs to consider. Is your association currently self managed, or will it be transitioning from a management company? How large is the association? Are there any amenities such as a pool or clubhouse that need to be maintained? How active is your board? And, last but not least important, can the association afford to hire an HOA management company?
Self Managed vs. HOA Management Company
First, let's look at what it means to be a self managed company and what is involved with hiring a management company. If you're new to the board, or you've never hired a management company before, don't skip over this.
Homeowner associations have a board of directors, or sometimes called a board of trustees, that are elected by the members of the association. These volunteer homeowners are the ones that are ultimately responsible for conducting the business affairs of the association, keeping up with financial information, and ensuring the association is operating properly. The board of directors has authority to collect fees, pay bills, hire vendors, fire vendors, obtain and bind insurance, etc. - all without community votes. This authority is established in the HOA bylaws for your association.
What is a Self Managed HOA?
When we talk about a self-managed HOA, we're referring to an association that does not have a third party HOA management company to run the operations of the community. This could mean that the HOA is large enough to hire its own staff and onsite manager that are direct employees of the association. However, more often it refers to smaller associations where board members are tasked with everything and they do not have professional help.
The HOA board is responsible for responding to homeowners, coordinating with vendors, city officials, the HOA's attorney, CPA, etc. It also means they're responsible for the HOA accounting and financial planning - presenting the budget each year and ensuring the association is meeting it's current financial obligations, and also planning for the future. Financial and legal compliance is where we most often see self managed associations run into trouble. The board, most often through lack of knowledge, doesn't file tax returns for the association, or setup long term reserve plans for future maintenance needs. We've seen condominium associations that are 15, 20, 30+ years old who have rarely, or never, raised their fees and have large amounts of deferred maintenance and no capital reserve funds to pay for it.
What is an HOA management company?
An HOA management company is hired by the association, like any other vendor. They are a contractor that is setup to help the association run the daily operations and maintenance of the community. While the scope of services may vary depending on the agreed upon proposal and management agreement, the services are generally the same:
- Bill and collect HOA assessments from homeowners
- Pursue delinquent assessments and engage with third party collection agencies and/or an attorney
- Manage violations within the community by tracking violations, sending notices, and applying fees or fines as outlined within the governing documents and state laws
- Assist the board by helping run meetings
- Prepare bid requests and solicit bids from vendors
- Keep up with ownership information and update association records
- Engage a CPA firm or certified tax preparer to prepare tax returns for the association
- Coordinate with a CPA firm for audits as needed, or required by state laws
- Prepare annual budgets
- Consult the board on best practices and industry experience for decisions
You'll notice that none of these duties include hiring a vendor, approving invoices, making decisions for the board, or voting on community issues.
A management company is not a replacement for the HOA board (we've actually had board members ask if we can just be the board because they're so burned out!). Even when an HOA management company is engaged, the board is still responsible for all community matters and legal issues. The HOA manager is there to help with the administrative burdens, but ultimately it is the board responsibilities to vote on key issues and make decisions on behalf of the association as provided within the HOA bylaws.
Should we hire an HOA company when we have a small HOA?
It's important to consider several factors when it comes to hiring a management company.
How much does an HOA management company cost?
The costs associated with hiring a management company will be different for every association. Companies will charge different rates, but will generally be in the "same ball park." However, Numerus, will almost always be a more affordable option compared to a local management firm.
If the association currently has a local HOA management company, then hiring Numerus will most likely result in a cost savings for the association.
If the association is self managed, then hiring a company will mean a new expense added to the budget. Can the association afford the additional expense? How much will the HOA fees need to be increased in order to offset the costs? The board generally has the authority to increase the assessments when preparing the budget each year. However, there is usually a cap, generally between 5% and 10%, that the board cannot exceed. If the cap exists, it would be in your associations bylaws. An increase by more than the stated threshold would need to be approved by a community vote. The limitations, percentage of votes needed, etc. are all outlined in the bylaws and can vary from one community to the next.
Is our HOA large enough to hire an HOA management company?
It's important to note that "size" is relevant to the type of the association. For example, a small subdivision with 60 homes, no amenities, and very little common area, has very limited upkeep requirements. Other than collecting the HOA assessments, there are a handful of bills to pay each month, and perhaps some seasonal landscaping work that is done by a local vendor. By contrast, a condominium development with 60 units has much more work involved with common area maintenance, exterior maintenance, roofs, decks/patios, interior cleaning, parking, HVAC systems, etc.
When it comes to hiring a management company, it's not just about the number of homes or the size of the community. But generally speaking, we have found the threshold for single family homes to be around 100 to 150 homes, assuming there's no community pool.
For condominium and townhome associations, we generally see the limit of 60-70 homes.
Communities larger than that will generally be better suited for a local HOA management company. However, there are always exceptions. If the board works well together, is actively engaged with the community, is comfortable with coordinating with vendors and projects, and the HOA is needing to cut costs, then using Numerus may be a good option.
Self Managed HOA vs. Hiring an HOA Management Company
Whether the board chooses to run a self managed HOA or hire an HOA management company will ultimately come down to:
- The amount of work required to run the association
- How much the board is willing and able to contribute
- The HOA's financial position
If the board finds itself in a position where the association cannot afford a full service HOA company, or perhaps feels like having an HOA company isn't worth the costs, then a remote HOA management company like Numerus would be a great option. Numerus can handle the administrative tasks, dues collections, bill payments, financial reporting, budgeting, etc. while the board handles maintenance and upkeep with your local vendors, community inspections, etc. Numerus is a good "middle of the road" approach with its hybrid model. If you have more questions, or would like additional information, contact us today for a custom HOA management proposal.