When an association retains a management firm to administer their community they pay a monthly or annual fee for those services. The services that are provided for that fee are explained in more detail in "The New Guide For Management Services" (Archive article). The question here is how does the management company arrive at that number? What goes into determining how much it will cost them to manage your association?

The first thing you need to know is that the management company probably cannot tell you exactly what it costs to manage your association. This is because few, if any, companies have the kind of detailed time reporting systems necessary to allocate costs accurately. A management company sells time. The more time spent on your association business by their staff, the greater the cost to the company. The fees they charge you are partly an estimate of the time they are guessing they will spend on your account. I will deal with this in more detail a little later on.

So what goes into the management fees? Start with the fixed costs. This is the overhead that is present year-in and year-out. Rent, phones, copier, insurance, computers, fax…all of the standard items needed to maintain a business office are in here. Take this total cost, divide it into the number of units managed and you get a number that has to be covered. Since these bills have to be paid, this part of the cost is usually not a negotiable item.

The next part of the cost is the labor. Here, a number of variables enter into the equation…the salary levels of the staff who work with an association, how many associations they are assigned to, and the time needed to handle each account. Lets look at a typical management company and the problems they face trying to balance that equation.

Typically there will be 5 people who deal with your association: the manager, an administrative assistant, a bookkeeper, a supervisor and one more support-staff person, usually a receptionist. Each one will handle other associations in addition to yours. For example, the manager may handle 7 associations, the administrative assistant may be shared by 2 managers and so may handle 14, the bookkeeper may handle 10, the supervisor may have 3-4 managers under them which means they may deal with 25-30 associations and the receptionist gets them all. The salaries, benefits, taxes and expenses of these people have to be allocated to the associations they deal with. But a problem occurs here. Let’s say they are all at their maximum workload. If the management company wishes to continue growing, the addition of another association to their portfolio would mean new staff would have to be added at a significant increase in staff costs. However, the income necessary to cover those costs (until they reach maximum workload) will not be there for awhile, so the company has to spread that cost among their existing clients until such time as they can grow to cover it. There’s really no way around this, it is simply a cost of doing business in this industry.

The salary and expense levels of the staff can have a major impact on the fees. If an association wishes to have experienced professionals managing their community, there is a cost attached to that. A good manager who wishes to make a career in community association management will attend the courses and try to obtain the certifications offered by CAI. Having done this, they would, of course, like to be paid accordingly. The associations should ultimately benefit from this effort, but usually don’t want to pay the attendant cost. This is one reason you may find yourself being managed by a different person every few years. When a management company can no longer afford annual increases commensurate with an individual’s efforts and skills, they often lose that person, to another profession or see them start up their own company. So, as an association, you have a choice…if you wish to retain the individuals managing your community, you can expect to pay the annual increases necessary to retain them.

The staff cost attached to your fees are directly related to how many associations the staff can cover. The more associations they can handle, the lower the cost per association. If your association is a huge time consumer, then maybe the manager can only cover 5 associations, resulting in fewer units to cover that cost which will mean your fees would be higher.

How does this work? Lets look at how the most time is spent with an association. I talked recently with a manager friend out in California who had just completed a study for the California Association of Community Managers. He found that a manager spends 80% of his or her time (for a single client) preparing for, attending, and cleaning up after board meetings. 80%!!!! That leaves just 20% for supervising contractors, dealing with owners, reviewing specs and contracts, and all of the other items a manager is supposed to be doing for you. When you stop to think about it, the number probably isn’t that far off. To deal with a typical board meeting, a manager gathers the information for and prepares the management report, reviews the financial statement, attaches relevant correspondence and puts the whole package together and mails it to the individual board members.

Since the great majority of board meetings are held on weekday evenings, usually starting between 7:00 and 8:00PM, the manager is forced to remain after normal working hours and the company usually has to cover dinner costs. The trip to the association is also an expense. For a two-hour meeting, that means the company either pays overtime or loses compensatory time off of 4-5 hours, which ends up as a cost to the association.

At the meeting, the manager is often asked to "look into" something, and ends up with a list of "to-do’s" which absorb most of the time available for the next week.

Depending on the length of the list, the manager spends anywhere from 14 to 20 hours around the board meeting. This means that for the average manager, handling 7 associations, can spend up to 140 hours,(out of a 160-hour month) dealing with the board meetings. This leaves very little time for the other management functions. This is often the reason management is forced to be reactive to problems, not pro-active.

What can you do to reduce the wasted portion of this time? Keep the board meetings to 1 hour or less…..move up the board meeting from 7:30PM to 5:30PM. Board members can probably arrange to be home once a month at this time…….Move the board meeting to the management office. Check to see if it’s conveniently located to where your board members work. Adding 4 hours to the time your manager can spend on association problems or reducing management costs by 4 hours a month can be a plus for your association. Simply eliminating one or two meetings per year won’t change things that much but consider holding board meetings every 45 days instead of monthly. If things are going smoothly you may not need to meet so often.

Other areas

There are other areas of the contract to look at. Are unusual circumstances such as managing insurance losses or supervising insurance repairs included? Items that cannot be foreseen should not be included in the basic fee. If your contract does not mention insurance repair or reconstruction oversight, then the management company is either not planning for it or has included extra hours in the base fee. This should be an extra item, not part of the basic management contract.

Taking part in legal actions falls into this category. Legal actions created by an individual owner which require management’s participation should not be included in the basic fee as the amount of time cannot be controlled.

Are costs created by individual unit owners included? For example, if a co-owner sells his or her unit, the association must provide them with a "Statement of Paid Dues and Assessments" letter certifying that all dues are current. The investigation, production, certification and delivery of the letter are costs created solely by the action of the individual owner and the association should not have to bear the cost of that. If the management company is not charging the owner for this service then the cost is built into the management contract with the association footing the bill.

General meetings, other than the Annual Meetings, or items related to a special or additional assessments cannot normally be planned for, resulting in large amounts of time being added to the management’s efforts and should also be an additional cost.

Take a good close look at the list of services in the Management RFP (Archive Article:   New Guide for Managment Services). Make sure you’re not paying for something you don’t need to. I’m not advocating a major reduction in management fees, they have been too low in this market for too long. This has resulted in high staff turnover and lowered professionalism among the front-line managers. By clearly understanding the full scope of services that management provides and the time cost of those services, you can realistically attach a value to the contract and to the professionals that serve as your management team.