What You Should Know About Management Companies

"Management company representatives are agents of the management company; their loyalty is to their employer, not the board and certainly not the homeowners."   Stephen Glassman, Villa Appalling

Do we need a management company? Management companies will often tell homeowners that they lack the training, education, experience, and legal expertise to properly operate a homeowners association. While it is true that homeowner board members generally lack experience in HOA management, it is also true that, due to the lobbying efforts of the CAI to defeat legislative attempts at industry oversight, the representatives from the management company are quite likely to be just as lacking in education and experience. Under current Texas law, anyone can call themselves a "property management professional."

There is really no reason why a HOA needs a management company. What homeowners must remember is that management companies have no fiduciary duties to anyone but themselves. By applying common sense before making decisions, and taking the advice of legal and accounting professionals, many self managed associations have found that association management is much easier than their former management company had led them to believe.  With the aid of a good bookkeeper and/or accountant, homeowners are quite capable of managing an association.

Get your own bids and save$$$ The association, not the management company, should get bids from contractors. Management companies have been known to pad bids from favored contractors to include kickbacks to the management company. This seems to occur more frequently with large companies who exert a powerful influence over contractors seeking their favor. Management companies will recommend attorneys with whom they have an ongoing relationship. These management companies and attorneys usually belong to the same trade group: the CAI.

Read the fine print: Management companies are agents of the association, acting on its behalf. However, their contract will likely spell out that in the event of a lawsuit, it is the homeowners association that is either responsible for the management companies actions, or guarantees to defend and indemnify them for their actions. Since the management company cannot be faulted, even if they act fraudulently, hiring the management company may place the homeowners in a more precarious situation than it would have been had they not hired them. There are other "red flags" to be aware of. Some management companies will write into their contract yearly automatic pay increases. Management companies have also been known to arrange to have their contract renewal to take place just before the annual meeting to eliminate the homeowners input.   

Extra fees: Management companies will often bill for "specialized work," outside the contract. This often includes fees charged by the management company for calls made to the associations attorney who will also charge fees to the association. Attorneys try to convince boards that it is in their best interest to have the management company in constant contact with the attorney. Management companies may also charge for reading emails from board members and homeowners. A primary source of extra fees charged by management companies comes from covenant violation procedures. This involves sending violation notices to homeowners and having management company representatives periodically patrol the neighborhood looking for covenant violations. In order to increase their fees even further, some management companies will try to convince board members that additional rules, regulations, penalties, and fees be imposed on the homeowners.