Blog

<a data-mce-href="../behind-the-gates" href="../behind-the-gates" target="_blank" data-mce-selected="inline-boundary">Subscribe to the Newsletter!</a>HOA management companies thrive in all economic conditions. Even when homeowners are struggling to pay bills, these corporations are flourishing. While some companies are feeling the pinch of inflation and interest rates, the HOA management business doesn't feel the pain. How can this be? The biggest contributors to profit stability are rate increases pushed onto existing customers, transfer (resale) fees, and reserve fund investment services income. <ul><li style="list-style-type: none;" data-mce-style="list-style-type: none;"><ul><li>The single largest contributor to long-term financial stability for HOA managers is pricing increases. Management agreements by default come with terms that allow managers to increase prices without approval, buried at the bottom of a long annual disclosure letter. One letter in the mail, and BOOM! All of your costs have increased beyond the prices in your signed management agreement.</li></ul></li></ul> <ul><li style="list-style-type: none;" data-mce-style="list-style-type: none;"><ul><li>The second biggest driver of the financial success of HOA property management firms is transfer fees. Commonly called resale fees, they are charged when a home within the community is sold. In exchange for the transfer fee, the new homeowner is provided governing documents (CC&amp;Rs), HOA bylaws, meeting minutes, rules and regulations, financial statements, reserve studies, and more. Effectively, what they’re receiving is a stack of papers – papers that already exist, not uniquely generated documents. The fee is capped in certain states and remains a fair cost to the homeowners. However, in states where transfer fees are uncapped, management companies have aggressively raised pricing for years, driving millions in profits. The cost of providing these services, if one could amortize the upfront and ongoing costs, is next to nothing. Yet this gigantic stack of mostly boilerplate documents can cost over $1,000 all-in. No one questions this – I think because it gets lost in the much larger real estate transaction taking place – but this fee is egregiously overpriced.</li></ul></li></ul> <ul><li style="list-style-type: none;" data-mce-style="list-style-type: none;"><ul><li>The largest service providers in the industry offer reserve fund management, an add-on service offering to generate safe returns on your HOA's excess cash in exchange for a share of the interest income generated. Corporate management companies leverage their size to establish banking relationships that will yield in excess of what the HOA can safely generate on its own. This service is a win-win for most HOAs and their management companies. Even though the two entities are splitting the interest earned, both are generating more than they would otherwise. In almost most cases, the management company is pocketing a multiple of what the HOA is taking home. The true mentality a board must take into negotiations is that, yes, both parties are winning, but without your HOA reserve funds, there would be no profits at all. The HOA deserves its fair cut.</li></ul></li></ul> Push back on these price increases, and you'll be met with a myriad of "explanations" for the rising costs: inflation, new administrative requirements, new compliance tasks, etc. The primary goal of the management company is to justify these costs by any means necessary. The most common approach is to overwhelm the board with a firehose of information, detailing every conceivable reason why costs would be rising. I have seen all these games and can expertly parse out price increases driven by real costs incurred by the management company and price increases aimed at padding the bottom line.I don’t mean to imply that management companies are out to mislead boards about the true costs they’re being charged – all of this information is disclosed in a fair and legal manner. But what they won’t divulge is their bottom line on having your HOA as a client. On-site payroll costs, management fees, collection fees, etc., each drive a unique gross profit margin for their business, to the point where it’s often worth breaking even on some items to reap outsized benefits on others. My team gives you full transparency on how competitive your management costs are and what kind of profits you create for your management company. We are experts at knowing where to push and how hard. After all, get too aggressive negotiating low-cost services, and the management company won’t hesitate to terminate your HOA as a client.Let <a data-mce-href="https://www.boardwisesolutions.com/services" href="https://www.boardwisesolutions.com/services">Boardwise</a> empower your HOA so you don’t end up being the management company’s profit margin.<a data-mce-href="../contractreview" href="../contractreview">Send your management agreement for a free preliminary read</a>

3 Ways HOA Management Companies Maintain Profits

<a href="../behind-the-gates" target="_blank" data-mce-href="../behind-the-gates">Subscribe to the Newsletter!</a>A management fee is what homeowners collectively pay to a professional property management company in exchange for handling the HOA’s day-to-day operations, administrative tasks, and assigning community management professionals to help with these and other duties. Some management fees are considered “all-inclusive,” which means they’ll cover extras like newsletter mailings and architectural applications. Meanwhile, a “non-inclusive” management fee only takes care of the essentials, so add-ons like newsletters or architectural reviews will be billed separately. Regardless, every management agreement includes a section outlining the management fee and exactly what’s covered.<figure id="figure-rrazmoyznm6q2phwy" class=""><img id="rrazmoyznm6q2phwy" src="https://cdn.durable.co/blocks/218WH7ScsGDpiMOL6eNOjDrBbvZiYWjZuwEo15KKcBCcwY8rvU1rP4JIaUqAbq4M.jpg" alt="" title="" class="object-cover bg-gray-100" style="aspect-ratio: 16/9; object-position: center center;" data-corners="default" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-fullwidth="false" data-mce-src="https://cdn.durable.co/blocks/218WH7ScsGDpiMOL6eNOjDrBbvZiYWjZuwEo15KKcBCcwY8rvU1rP4JIaUqAbq4M.jpg" data-mce-style="aspect-ratio: 16/9; object-position: center center;"></figure>The tasks covered by the management fee are undeniably critical to running a successful HOA. Let’s face it—no community can function properly without hiring and training a community manager who handles operations, administrative duties, board meetings, and the general needs of both the board and homeowners. An HOA is, at its core, a business, which means it requires a capable team to manage a variety of tasks that go beyond the scope of this blog. But if you’re on the Board of Directors trying to evaluate whether your management fee is both appropriate and aligned with the service you’re getting, it’s pretty tough to do so. The more inclusive a fee is—that is, the more items folded into a flat monthly rate—the harder it becomes to break down the cost of each service and confirm you’re paying a fair rate. When corporate management firms take advantage of this ambiguity, it’s easier for them to pad their profits because it’s so complex to determine the true hard costs.Here’s an example: imagine a fictitious HOA pays $2,500 per month in management fees. According to the management contract, that covers:<ol><li>An assigned community manager</li><li>Organizing and attending a monthly board meeting</li><li>Weekly drive-throughs to enforce the community’s rules &amp; regulations</li></ol>This is a straightforward management fee bundle. The Board might try to ballpark the costs for items 1–3 to decide if the fee seems fair. But here’s the problem: it’s nearly impossible to validate those costs, and even if they look okay at first glance, you can be sure the management company is profiting comfortably, because they can likely deliver the same service at a lower cost.Let’s look closer at #1, the assigned community manager. Corporate HOA companies will often say, “These costs are justified because we have to hire and train each manager, run payroll, offer benefits, purchase insurance, pay taxes, etc.” While that might be true, they’re leaving out the real specifics. And you’re left with more questions than answers:<ul><li>Your community manager might be assigned to multiple HOAs—often 6 to 10. So how is that cost divided?&nbsp;&nbsp;</li></ul><ul><li style="list-style-type: none;" data-mce-style="list-style-type: none;"><ul><li>What’s your fair portion?</li><li>Which other HOAs does that manager support, and how is their time allocated?</li><li>Are other HOAs receiving the exact same level of service as you?</li></ul></li><li>Property management companies have an existing HR framework in place for all the HOAs they manage.&nbsp;<ul><li>What does that cost look like, and how much of it should fairly be passed on to your homeowners? </li></ul></li><li>Yes, paying for the community manager’s benefits may seem fair, but the management company can’t disclose if the manager even uses their medical benefits without risking HIPAA violations. Some folks are on a spouse’s plan, costing the company nothing, whereas a family plan might cost $10,000–$20,000 a year.</li><li>Charging the HOA for insurance (like workers’ comp) might feel logical—the manager could get hurt on the job—but does that cost factor in the company’s umbrella policy discounts? And if another HOA’s manager gets injured, does your community end up sharing the increased premium costs?</li><li>Many management agreements include language allowing fees to rise with inflation (based on the Consumer Price Index).<ul><li>Would a fixed escalation rate be better?</li><li>Should your management fee even be going up at all?</li></ul></li><li>As new units finish construction and phase into the HOA, how should your fees adapt?&nbsp;</li></ul><ul><li style="list-style-type: none;" data-mce-style="list-style-type: none;"><ul><li>What’s the charge for each additional home?</li><li>Should the per-unit fee decrease as your community grows? </li></ul></li></ul>Don’t be surprised if, when you bring up these concerns, the management company keeps its cards close to the vest. Too many boards sign contracts without realizing how much money it will cost homeowners and reserve funds. That’s precisely where Boardwise comes in. Thanks to decades of insider experience, we know exactly which cards the management company is holding. We can dissect real expenses from profit margins and advocate on your behalf. We know when your HOA contract is overpriced, and we’re able to read between the lines and see past deceptive contract language. We also understand the various revenue streams and how two otherwise identical HOAs can end up paying wildly different management fees for the same service—sometimes without even knowing it.Ultimately, every HOA Board deserves to understand exactly where their money is going—and why. That’s where <a data-mce-href="http://www.boardwisesolutions.com" href="http://www.boardwisesolutions.com">Boardwise</a> can help you see through complex contract language, determine fair costs for assigned community managers, and protect both your homeowners and reserve funds. If you want to take the guesswork out of your HOA’s management fees, <a data-mce-href="http://www.boardwisesolutions.com" href="http://www.boardwisesolutions.com">Boardwise</a> is here to help you make confident, cost-effective decisions for your community.<a data-mce-href="../contractreview" href="../contractreview" data-mce-selected="inline-boundary">Send your management agreement for a free preliminary read</a>

Evaluating Your Management Fee

Boardwise Solutions

My business provides consulting and negotiation services for 3rd party HOA Management contracts.  I provide boards knowledge and support on how to save money without sacrificing service and avoid the contractually tricks management companies use to pad their margins and increase rates.