Small and medium size community associations have many choices when they consider how to manage the day-to-day operations of their properties. Do they keep fees as low as possible and save money by being self-managed? Or find a way to pay for the complete services of a major management firm? Or look at some middle ground as the best option?
Just as a benevolent dictator may be a republic’s most effective ruler, a committed and talented trustee may be a self-managed association’s best key to success.
In the real world, associations run the gamut from 100 percent trustees/volunteers doing everything to 100 percent “call the manager.” And community boards are known to switch from one to the other, testing the water at either end. Just as certain criteria will identify a successful, efficient management company, there seems to be certain essential qualities among board members or trustees who are doing successful management themselves.
Measure the Value
Self-managed condos tend to have a higher incidence of dysfunction, notes Richard D. Vetstein, Esq., founding partner of Vetstein Law Group in Framingham, Massachusetts. In self-managed properties, he states, “you have people in charge who are not professionally trained, and their own personal perspective can get in the way of their decisions. For example, the building may need a $15,000 roof replacement, and the trustees are deadlocked because one 75-year-old member, who’s been there for years, is adamant about avoiding a major expenditure, and potential assessment, and he’s pushing for just a patch job instead of long-term replacement.”
In smaller properties, he continues, “such as converted multi-families and three-deckers, every unit owner is on the board of trustees… managing everything themselves. This is where we see the worst situations, where failure to agree [on an action] escalates into a fight—like, literally fighting.
“The worst example I’ve ever seen,” Vetstein relates, “was a 60-unit rental property near Boston that was converted into condos in the mid-1980s. The building owner lived there and after he sold off the units, he never transferred management to the board of trustees. Even with condo docs in place, he didn’t follow them. He’d been there so long… It was all he had, and he was crusty and wanted to stay in control. It was his own little castle.
“But the unit owners, many were elderly, were intimidated by him. He went on for years without repairs or replacement on the property—major maintenance was forgotten. The common areas, walkways, pavement became downright dangerous, with residents tripping and falling—getting hurt. And the financials were a disaster, too. We had to invoke an emergency injunction and a receiver was appointed. With court action, the owner was finally ousted, but it took tens of thousands in legal fees.”
While Vetstein admits he only deals with properties that are having problems and notes, “I don’t see a statistically valid sample, but I still think the pros [of a management company] far outweigh any advantages of self-management.” He believes that a professional management company, while an added cost, can add great value to a condominium with well-run governance and management of common areas.
Beyond Cutting Costs
So what are the real advantages of self-management? At Fairway Oaks in Brockton, Massachusetts, trustee and property manager Chick Clark insists, “More important than the cost savings is personal contact.” The 204-unit property on 16 acres was built in 1972 and converted to condos in 1982. Clark explains, “We had a management company for the first 15 years, and learned… that management company was not financially responsible; they were more spendthrift, while, [managing it ourselves] we watch every expense.”
For what Clark considers “self-managed,” the association enlists several employees and professionals. “We have a full-time maintenance employee, and part-time pool staff and office administrator, plus we use an accounting firm and attorney… and I am part-time—up to about 30 hours [per week]. The previous management companies only spent anywhere from 12 to 20 hours per week on the property.”
“I have lived here for 19 years, and when I retired [from retail management], the condo fees had risen 50 percent over five years. Even with higher fees, I saw some deterioration.”
In more recent years, without a management firm, there have been numerous major upgrades, including the swimming pool getting rebuilt, Clark points out. “Our overall condition is maintained and rules are abided by.
“A self-managed association is doing the job for the residents… while management companies are only working for the payment,” he continues, and admits, “Management companies may have shown us how to do it [the technical details], but we do everything, and it’s for our own benefit. This is a housing community with personal contact. We’ve gotten the community involved, we organize quarterly block parties, people talk to their neighbors… taking active interest in their [community] investment. We have a quorum at every annual meeting now, while we didn’t in the past.”
Explaining other drawbacks he sees in having a management firm in control, Clark says, “when you retain control of the finances yourself, there’s [automatic] continuity. When a management company is holding everything, and then if they leave, your board has to recoup the financials and documents and get everything ready for the next management team. It’s better to control the finances yourself… and we get help [from] our trusted, long-term accounting firm and attorney.”
When an association’s trustees are committed and personally involved in running their own community, whether as paid staff or as volunteers, it can work really well, Clark insists. “I don’t feel like a manager, I feel like I’m one of 204 people taking pride in my home ownership,” he says. “A self-managed property can draw out the best in its residents.”
Another property successfully managing itself is River Village of Hooksett, New Hampshire, built in 2003 with 20 units. The three-person board of directors is headed by association president Charles Dockery, who concedes, “I’m chief maintenance man.”
“We do almost all of it ourselves,” he states, “even the day-to-day financials, although we have an accountant to do audits. And we are totally uncompensated. My main advice for any board that considers self-management… is to get whatever help you need on the technical side.”
The property is an “active adult” over-55 community, and Dockery and his fellow board members are retired from high-powered business and management careers. He admits, “We got involved for self-preservation… because we live here, we have an investment. The former board had problems with financial organizing and reporting, and they did not want to continue. We [three] were the only ones to volunteer. We ran unopposed.
“An association is like a little country—they’re all unique,” he contends. When we leave, we hope the residents will let us find replacements [to manage the property]… It could be a good management company, even though that would cost more money… just so everything we’ve built here won’t get destroyed. But what are the chances of finding board members who have the background, skills, and time, along with the desire and commitment? You can almost say the same thing about hiring a management company—it’s still a crap shoot.”
Self-managed, with Support
“Most properties that consider themselves self-managed usually are handling day-to-day operations themselves, and job out some of the important duties, such as financial operations,” reports attorney Patrick Brady, partner at Marcus, Errico, Emmer & Brooks of Braintree, Massachusetts. “If they’re truly self-managed, it means the trustees or board members are doing it all, but you’ll usually only see that in smaller properties … of up to six units or so. Larger than that, you see boards start hiring staff, or paying a regular vendor to get ongoing services or maintenance done. This arrangement is more of a hybrid,” he explains, when associations avoid using a management firm but make use of regular vendors or employees.And “self-managed” associations don’t hesitate to hire their own trustees as on-site employees, to do maintenance, office administration, bookkeeping or using whatever skills board members may offer. Brady points out, “Most condo docs include a provision that addresses potential conflict of interest, by allowing any trustee or unit owner to be hired [by the association] as long as there is disclosure. The problem is when the trustees hire one of their own to work as property manager, it can result in conflicts with the different roles the person is serving in. The lines may not be clearly defined as to which ‘hat’ the manager is wearing at a given time—employee? unit owner? trustee? Dealing with different factions… it can get political. It may be difficult for trustees, who may also be employees, to enforce rules or collect fees or fines… with their own neighbors. It may be worth hiring staff just to ‘play the bad cop’ so then [conducting business] is not personal.”
Brady cites an example of a property that gave up its attempt to completely self-manage. “I have a community of almost 60 units that was doing it all themselves. Unit owners were asking for the financials, but the trustees ‘didn’t have time’ to comply with requests, simply because they underestimated the time and work and record-keeping involved. They finally hired an accounting firm to manage the finances.
“I had another property that got in trouble simply because a trustee moved out, at an eight-unit in South Boston. The master insurance policy payment was due but the trustee who was handling that payment had sold her unit. Although the invoice got forwarded and she returned it to the association, they didn’t contact the insurance company right away.” The policy lapsed and the timing couldn’t have been worse, he continues, “because they had a fire in the roof with several hundred thousand dollars in damages—and the insurance wouldn’t cover it.” With self-management, says Brady, “Your contact people can move… and there’s no permanent [business] address.”
When associations consider self-management, Brady advises, “they must look at the pitfalls and weigh them against the advantages. People underestimate the knowledge required and the role of a manager—dealing with people, vendors, legal issues, finances. Even if things are going well in a four-unit property, [it’s because] you’re only dealing with four small [financial] ledgers.”
“Also, with these small properties,” he adds, “problems can arise with having all unit owners on the board of trustees. We had a six-unit building—all owners were trustees—and one guy owned three units, but he lived in California. He kept voting against the most routine, minor repairs and expenses and the situation just got worse, with emotions and personalities getting in the way of [what should be] basic business decisions. Finally, his attorney convinced him to go along with a change in the condo docs to allow voting by a percentage of interest and not number of units. A lot of money was wasted there because of unprofessional self-management.”
Small associations can avoid such mishaps, Brady notes. “First of all, don’t have an even number of trustees… There’s no need to have all unit owners on the board of directors. In considering self-management, boards should really look at the number of units and figure out the time involved, and if the trustees have enough expertise, as well as the commitment. And at the very minimum, boards should use a professional financial management company.”
While management companies may seem costly and lack the personal touch of self-management, it may be the most practical choice. The success of self-managed properties may depend exclusively on the willingness of especially skilled, committed, and available trustees—for communities lucky enough to have such individuals on board.
Marie Auger is a freelance writer and a frequent contributor to New England Condominium.
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