Convenience and saving money are just a couple reasons why an association would choose to self-manage a property. Though, outside managing firms and property managers are hired and employed for good reason. The job requires collecting monthly condo fees, hiring and managing staff, responding to residents’ issues, among other expected and unexpected tasks.
“The primary advantages of self-management are a significant expense-savings for the association. Few associations self-manage because of the significant involvement that self-management requires,” says Attorney Russell Robbins, a partner with the Coral Springs-based law firm of Mirza Basulto & Robbins. “Obtaining bids for services and no buffer from the ire of residents is a significant deterrent to an association considering self-management. Depending on the number of association employees, the association may now come under the jurisdiction of federal, state and local laws as an employer.”
As Robbins correctly points out, self-management is time-consuming and requires an ombudsman-approach to tenant affairs. It also leads to employment-related legal issues that might require additional attorney services to ensure regulations are met. In some cases, the move to self-management is a stop-gap measure that sticks.
When to Switch
“Frequently associations move from management either with a management company, or a licensed manager as an employee, when the board changes hands from turnover to unit owner control, after a recall, or where a majority of the board members change after an annual election, or when the association fires the management company or the manager retires,” says Robbins. “In these gaps in professional management, the association may attempt to undertake self-management. In many associations that have been self-managed for much longer periods of time, they have a continuous supply of volunteers ready to serve the association as both board and committee members.”
Steven Weil, president of the Fort Lauderdale-based Royale Management Services, explains that the leading advantage remains cost savings for most associations but said the acting manager should live on the property so they are available to owners, and able to handle problems at any time, which provides boards with more control of day-to-day activities. Of course, he noted that there are drawbacks to this self-governing approach.
Pros and Cons
“Disadvantages are burnout of board members, failure to follow sound management practices, and lack of oversight—because with a manager there is oversight by the board, and hence a place for owners that do not agree to go,” says Weil. Additional disadvantages include failure to follow Florida law. “We find that self-managed communities seem to think that, as owners and board members, they can meet without taking and keeping meeting minutes, properly posting notice, or allowing owners to attend meetings. Many self-managed associations also tend to overlook making sure that contractors are properly insured or even licensed, opting for the cheapest solution, which could cause problems far exceeding the costs.”
Industry insiders suggest associations seek out educational services from organizations like the Community Associations Institute (CAI), before deciding if self-management is right for them. “There is good information in lots of places from legal updates taught by law firms to tradeshows and conventions. The number one requirement is an open mind, he adds, saying that “all too often we find that board members approach operations and the running of an association from ‘what is it I want’ and ‘what I got on the board for’,” says Weil. “It’s important that boards, officers and managers all remember their fiduciary responsibilities to the association and all the owners.”
Robbins adds, “Board members could also obtain the Community Association Managers license to gain the knowledge of the applicable Florida Statutes affecting associations. There are also resources available from the state ombudsman’s office, which is a liaison between the Department of Business and Professional Regulation and condominium unit owners.”
Self-Managing Factors to Consider
The size of an association often plays the deciding role in determining whether or not to self-manage. “Many factors influence the decision to self-manage, however, the most successful associations that self-manage are small associations, with few common elements,” says Robbins. “Larger associations generally require the full-time involvement of the board if self-managing, and few, if any board members, are willing to make the sacrifice to the community for what may be considered minimal savings. Many associations may elect some middle ground between full-time on-site managers and settle on a limited or part-time on-site or portfolio manager.”
After considering the size of the property or association, the next set of variables to be studied is special circumstances unique to a respective association, which could make self-management a poor choice. “It’s more about how many hats you can effectively wear. For example, a person might be great with accounting but not understand maintenance or how to deal with contractors, someone who is great with owner relations may not be good at enforcement. Managers wear many hats,” says Weil.
In Weil’s experience, a team approach to self-management is the best course of action. He points to the operations of his company as a comparison to what a self-managed board can expect. “This team approach works best so that our field service managers know and supervise property and maintenance activities while our administrative managers oversee notices for meetings, meeting minutes, following up on contract renewal dates for vendors and record-keeping functions,” he says. “Add to that mix bookkeepers, and accountants that keep the financial records in order, it’s hard to find one person that can do it all well.”
If after weighing all the pros and cons of self-managing and an association decides on moving forward without third party partnership, Robbins explains the association needs an active board that has divided the responsibilities among the members, and has a strong rapport with its vendors. “Self-management may make more sense in small homeowners associations where there is little common area to maintain,” he says. “While it is a good idea to have professionals serving on the board, such as attorneys, engineers, architects, and accountants, if their personal schedule is demanding, they may have little, if any time to assist the association.”
Aside from burnout and the possibilities of self-managed entitlement which may lead to laziness or oversights, Weil says poor record keeping is often a problem as each successive board has a specific approach to management and bookkeeping. “Many self-managed associations do a good job or put someone in charge that may have some management experience but if the person who knows or handles the day-to-day operation quits, sells, gets sick or leaves, the association can be left in turmoil.”
This approach to association management is not a new practice and occurs all over the nation—so much so that there are companies that cater to this niche segment of the industry. Buildium, for example, has developed software that is used to manage more than 500,000 residential units in 31 countries worldwide. The Boston-based company has software for both property managers and associations. The latter software program, which can be tested on a 15-day free trial basis, handles properties from a few units to 1,000-plus units.
Dealing with Vendors
Whether a board elects to use a vendor for a contained software solution, as a self-managed association they will have to deal directly with contractors, which can be cumbersome. “The board should thoroughly vet its service contractors, and extra attention to detail can potentially save the association thousands of dollars. Erring on the side of caution, the board should obtain multiple bids on all projects to ensure that the amounts quoted are reasonable,” says Robbins. “Far too often in my practice, I see self-managed associations make costly decisions in selecting vendors that are not only costly to the association, but subject the board to accusations of theft or kickbacks.” For larger projects, Robbins suggests that the association hire an engineer or general contractor to properly supervise vendors and ensure that an accurate “scope of work” is created for each vendor to properly bid on the work to be performed.
Even the best-intentioned associations that opt for self-management can bite off more than they can chew, which has far-reaching impacts on the vitality of the community. “We have picked up management from a number of self-managed associations where records are few and far between, including financial records, copies of existing contracts, renter approvals, and much more,” says Weil. “Associations and their board can be fined for failure to maintain or turn over records to succeeding boards of directors. We have also found a problem with informal meetings of the board without adequate minutes, failure to file required tax returns, unpaid assessments by directors, and poorly or unaccounted for petty cash accounts.”
Robbins says that in hindsight, many associations regret the decision to self-manage. “I have seen even the most educated, dedicated and knowledgeable boards give up on self-management after a short period of time,” says Robbins. “In many instances, the members will not appreciate the cost-savings to the association, and the resulting dissatisfaction to the members of the board could result in burnout.”
W.B. King is a freelance writer and a frequent contributor to The South Florida Cooperator.