Doing It Yourself Does Self Management Really Work for Your Property?

Doing It Yourself

Is it simply about the money? Condo associations that forgo the services of professional management are cutting what may seem like a major expense. But the belief that “we can do it ourselves” may work great for some time and for some properties but may not ultimately be a good value or work in all properties.

Attorney Patrick Brady, a partner at the law firm of Marcus, Errico, Emmer & Brooks, P.C., in Braintree, Massachusetts, relates, “Just the other day, I got a call from an association in a Boston suburb... This property has about 55 units and has been self-managed. Well, one of the trustees who was serving as manager had stepped down, and for about a year another trustee had been managing the property, but apparently, he got sick some months ago, and the original trustee/manager just recently returned to the position but he couldn’t find the financial records and he called our office, all in a panic. Now… they will need to seek the services of an accountant. We told him to hire a professional and get the (association) on the straight and narrow.”

In a situation like this, he adds, “The computer is in one guy’s unit and how can anyone get at the records if he gets sick? All trustees have to be involved so someone else can easily step in and take over.”

This is just one example, Brady points out, of how “you have to operate like a professional manager would, if you’re trying to be self-managed. You have to keep accurate ledgers because you have a fiduciary duty…” He notes that in small-size properties, a trustee might be paid to be the property manager, but “I’m not a proponent of a trustee being (an employee) because he’s his own boss. I’d rather see the trustee get off the condo board if he’s managing the property in a paid position… but it does depend on the size of the association.”

While trustees in small associations typically believe self-management is a way to cut costs, Brady explains that there’s more to it than money. “You’ve heard it before, someone looks at a task, it could be something like writing a magazine article… and they say things like, ‘I could do that.’ Well, we see board members looking at managing their condo community, and the tasks involved such as researching vendors, balancing books… and it becomes an ego thing where they think, ‘We can do this ourselves!’—but are trustees really qualified and do they have the time?

“The bills have to be paid, and there’s a proper way to do things,” Brady continues. “Whether self-management is a practical choice depends on number of units, sure, but just as importantly… how much (of the property) is in common interest. When a community has a lot of amenities like a clubhouse or pool, or infrastructure like roadways, then there’s a whole different level of accounting that’s required.”

“When board members want to manage their condo properties, we recommend they hire some help or at least take a class or sign up for courses, get some instruction in bookkeeping or property management,” he continues. “You wouldn’t jump into a sailboat for the first time and expect to just navigate it… You’d take some lessons.”

Committed Volunteers Don’t Last Forever

The extra burden of overseeing amenities is definitely something for self-managed properties to consider, notes attorney Carl Lisman of the Burlington, Vermont-based law firm of Lisman, Webster & Leckering, P.C. He agrees that self-management works best for properties no more than one to two dozen units, and amenities must be factored in. “We have all types and sizes of community properties in Vermont, both seasonal and year-round. The fewer elements there are to manage is what makes self-management possible… You could have a basic HOA built on town roads, where the only thing (for a board) to manage might be the mailboxes. I’ve seen condo properties with 40 or 50 units where the owners do most of the management. This can work at properties that are owner-occupied full-time. It would be difficult at a seasonal, resort community.”

Typically, the board of a self-managed community will make the switch to professional management when they reach some turning point—often it’s when key, committed volunteers step down.  Lisman says, “It’s less often that you see a board give up professional management to become self-managed, but it does happen, when people believe, ‘I can do it better’ and not have to pay anybody else to do it.

“I’ve had condo boards that thought they could be self-managed despite my advice, when I knew professional management would, in the long run, save time, money and aggravation. In one instance, we had a self-managed townhouse community with about 20 units, the board was having a lot of controversy over a special assessment to cover roof replacement, plus there was an effort to adopt a no-smoking policy that would have extended to inside the units. Things became very fractious between trustees and unit owners. I suggested hiring a professional manager as someone independent to untangle the gridlock and get things moving forward. But the board didn’t want to hear it… and they got another lawyer. It’s hard to know how things panned out in that case.”

“It doesn’t surprise me when a board of trustees winds up with another law firm, or another property manager, or contractor,” notes Lisman. “It’s usually the result of turnover on the board.”

Jobbing Out the Essentials

The smallest properties, under eight or so units, may be self-managed by design, but Lisman insists that for the majority of associations, “boards  almost always hire outside help for two regular responsibilities: a bookkeeper or accountant for the financials and a contractor for ongoing maintenance such as landscaping, trash pickup and the like. In small properties, they often have the board’s treasurer handling finances, but we’ve seen self-managed boards get embezzled by their own treasurer… or even by professional help. It happens because people are very trusting. We always warn board members to not give any one person the ability to sign checks. Instead, always have the board approve all disbursements.

“This problem occurs more than people realize,” he goes on. “Just in our firm, we have seen embezzlement at three different associations in the last couple of years. There are many of these situations that never come to light. Sometimes, someone is caught but the board says, ‘put the money back and we won’t tell the police.’ If a lot of money disappears, it can be a real tragedy if the association doesn’t have fidelity coverage.”

Self-managed boards often fail to pay attention to certain tasks that professional management is strict about, and Lisman’s advice is, “Trustees need to maintain a routine, make decisions and then follow up and implement them. They need a policy about how often to examine all common elements and physical conditions around the property. This doesn’t have to be as sophisticated as a reserve study… it can be more of a basic walk-around, but it’s essential to have a regular schedule.”

Unsung Roles 

Paul Tallen is senior vice president at The Niles Company in Canton, Massachusetts and has seen boards going both ways on the issue of management. “The number of units is not the determining factor,” he says, “Self-management relies on an extra commitment of the board members.” 

He agrees with other experts that when a self-managed association succeeds, it’s because, “lots of times there’s one or two volunteers carrying the ball. But, a lot of small communities simply run out of people to do the work. Different options (for management) are available, and there are companies that specialize in small properties,” he says.

“But still,” he contends, “it’s hard for a board to relinquish the reins. To make the transition, there has to be a lot of extra effort on both sides… by board members as well as the new management firm. One role of a property manager is to pull a board together. When you get a full house filling a meeting, you know there’s going to be complaints and problems. There’s a lot of politics. When management shows up, you’re sometimes a mediator, and board meetings can get very contentious, and even out of hand. I actually had to get involved at one meeting… by physically holding two guys back!”

One other important role of a management firm, Tallen believes, is extra communication. “Most self-managed properties won’t have a newsletter or an updated website or other lines of communication to the owners, and a management company will do that.” Another benefit that management provides, he adds, “is a network of vendors and contractors that we have developed, with a solid reputation and proven track record.”

Some communities, even large ones, succeed at self-management for many years. Tallen states, “We had a townhouse-style community of more than 100 units, self-managing for over 20 years before they hired professional management. Well, that firm just didn’t click and after six months, the board put together a search committee, and they hired our firm.” He notes that the board in that case was committed to using professional management and realized they needed to take the time to find a good “fit.”

Tallen contends, “As a manager, you have to gain the trust of the board and they have to learn to rely on you… rather than just scrutinize you.” 

Marie Auger is a Massachusetts-based freelance writer and a frequent contributor to New England Condominium.

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Comments

  • info@askthepropertymanager.com on Thursday, February 25, 2016 6:07 PM
    The successfully self managed communities are usually led by boards that know what their own limitations are and round out their resources by getting help from industry professionals in those areas of limitation. Some self managed communities have a maintenance manager that can help them prepare RFPs in a more technically correct manner, or they may have a junior accountant as their bookkeeper, and of course have a senior accountant prepare their Year End Report, and often have an audit instead as it is more thorough, etc. Frequently these boards will have some members with business experience on the corporate level, or an attorney, a teacher, etc. These individuals provide a good compliment to the balance of the self managed board members and all of their talents in total create a wonderful leadership. Self management is not a fit for every community. Some of our web guests have as many as 300 units, but they all have one thing in common: they know when to seek assistance, and this seems to be the cornerstone to their success.