Your property management company is the custodian of your development. It is the job of your managing agent to handle your HOA's finances, keep track of contractors and vendors, and pay bills. But what happens if the company you hired to do this important work turns out to be a dud?
A board might find they have a number of reasons to consider changing management companies, or even just a particular agent within a company: fraud, financial mismanagement, substandard attention, resident concerns, negligence, or just simple personality conflicts. When the time comes to change companies, boards have a lot of variables to consider—but above all, they should realize that who runs their building is ultimately their decision.
Reasons to Switch
There comes a time for many boards when they decide that their management company is not working out. But why?
"The most common reasons are lack of service, mismanagement of funds, a change of directors, or just financial reasons," says Robin L. Habacht, president of Monticello Management, Inc., in Leonia. "They may just be looking for a better deal."
Habacht goes on to maintain that many associations don't switch management companies when they should. They may be unhappy with the way the company is handling their property, but they are afraid of change.
"Change is difficult even with the best-intentioned boards," she says. "Many times an association would rather remain with what they have, as unsatisfied as they are, than move on to an uncertain future."
One of the most common concerns is that the board feels as if the management company isn't paying enough attention to them. Calls go unreturned, e-mails unanswered, and thus problems are not addressed. The board begins to feel as if they're paying good money just to be ignored.
"What frequently happens is they will feel as if their management agency is not paying attention to them or not communicating on a timely basis," explains Larry Silverman, president of Atlantic Management in Union City. "This leads them to believe that the management company is not very interested in their association."
Other times, the board might welcome a new director who has his own agenda: to replace the management company. For whatever reason, this board member may not have liked the old company and sees his newly elected status as his opportunity to make changes to how the development is run.
Sometimes, it can all come down to personality conflict. When that's the case, the board might want to consider sticking with the same management company, but simply asking for a change of managing agent. If the board is generally happy with the way things are run, but feels there's a wrinkle in their relationship with the individual working with their association, then maybe the company can re-assign another agent.
"Depending on what each building needs, a company could move agents from building to building in order to utilize specific skills needed for a property or project," says Michael Brower, of Michael Brower Realty Co. in Hackensack.
"Different personalities relate differently to boards. The board may not like you. You might not be their style," says Barbara Holland, faculty member of the Institute of Real Estate Management (IREM) and president of H&L Realty and Management Company in Las Vegas. "But if you have a good relationship with the company and are happy with them, then you can express the desire to change managers. The management company might initiate that and say, 'Look, we've gotten the impression that you really don't like working with so-and-so, but do you know that we can make a change?' That happens a lot."
It's always a good idea to thoroughly consider significant changes—such as the management company you hire. Keep in mind that this process, although an important one, does not have to take much longer than a couple of weeks. If you can keep the transition time brief, then your swap may actually be smoother.
"We've done it the same day, which is the best idea," states Silverman. "But, generally speaking, you should allow a month, only because that gives the other manager a chance to back off and the new person to fully come on."
Usually your management contract will dictate what kind of notice the outgoing management company will require if you decide to go with someone else. Most times it will say 30 days or 60 days—but the pros say the timeframe varies widely depending on circumstances. According to Silverman, if the contract doesn't specify a time period, it's good business etiquette to give the outgoing company at least a 30-day notice.
"At least three months' notice is helpful, which usually happens before the contract is up for renewal, provided gross negligence is not involved that has or would jeopardize the building or its shareholders," says Brower. "I usually suggest that the change happen upon the new fiscal year so that only one company is responsible and accountable for the books and records for that year, to avoid finger-pointing for information that is missing."
If you are only changing the agent but maintaining the same company, the process should not take long at all. The new manager would simply have to review the newsletter, review minutes of the meetings, talk to the current manager about any issues that might exist, walk the property with one of the board members, and talk to the board about what they might expect, says Holland.
If you are changing companies, however, you should do a little more research. Habacht suggests making certain that the new management firm is part of the Community Associations Institute (CAI), "[Which means that] they are participating in the industry as a regulated registrant."
"I recommend that boards do their research, ask about the background of the management firm, and make sure that the person they meet during the interview will be the actual managing agent and is not just a 'sales guy,'" Habacht adds. "You should meet the property manager and get his or her resume, as well as find out who will be handling your financial reports. And don't be afraid to ask questions."
Understand that your managing company should employ a range of personalities that work together to manage their clients' developments in the best manner possible.
"Management consists of technical people and conceptual people," explains Holland. "The conceptuals understand the big picture and the technical people are good at understanding reserves, finances, and people skills."
Spreading the Word
The new management company will be responsible for notifying vendors, contractors, and homeowners about the change. They will contact all of the people who have dealings with the associations, either via phone or letter, within a couple of weeks. Utility companies generally require written notice along with a copy of the management contract.
"You're going to want at least a 10-day jump to make sure that the vendors and utility companies start billing the new management company," suggests Silverman. "This is so that, in that first month, you're not searching for bills—trying to pay the water bill that you haven't yet received."
"We send all homeowners a welcome letter to let them know what's happening," explains Holland, who has authored numerous books for IREM. "Some have coupon booklets [for their payments] so we have to revise the mailing address on those."
Adjusting to the Change
In addition to correspondence, the new management company will immediately enter all the association's information into their property management software: this includes information about the members of the association, delinquency lists, lists of homeowners who might be involved in the foreclosure process for nonpayment, billing information for vendors, and so forth.
The process of entering the association's data might take a day or two, and is important in making the transition as seamless as possible, says Silverman.
"For instance, if somebody owes $100 to the association and you take over, you show that," he says. "There's no gap."
The outgoing management company will give the new company boxes of information to aid in this transition process. In one regard, this hand-over of materials is as simple as the old company saying to the incoming company, 'pick up the box at the front desk.' However, the hand-off of the boxes can become trickier when the new company tries to sift through information and realizes that the filing system is shoddy or some information is missing.
"We've seen some management companies that don't file correspondence into various folders," explains Holland. "Instead, they've got this one big folder that says 'correspondence.' But then, if there's a problem, you'd go to the file folder and—guess what—you can't find the letter. So, when something like this happens, we have someone in our office sift through the correspondence and re-file it."
According to Brower, the outgoing agent will generally provide a list of transfer materials and the incoming will sign off on it. "This should be done with the billing info at least two weeks prior to the change, and all books, records and files no later than the last day of the agents' contract."
In addition to phone calls and mailings, the new management company might opt to meet personally with contractors to see what the status of any ongoing project is.
One of the reasons for switching management companies might be that a board suspects mismanagement of their finances. Because of this, a board might want to be sure that the new property manager changes confidential banking information as diligently as a new homeowner would change her locks.
"Some boards prefer the old agents to close the account and transfer money to the new agent's account so there is no confusion about the ending balances," says Brower. "This goes hand-in-hand with changing agents at the end of the building's fiscal accounting year."
"We had one recent example where the old manager had been accused of dipping into the bank account, so we made a big point of switching banks so he couldn't get anywhere near it," says Silverman.
"If the association had the managing agent as a signer on the account, depending on the banking agent, they may do one of two things: 1) fill out new banking resolutions which includes new signers and eliminates the old manager; or 2) just fill out a new signature card without the old manager," recommends Habacht.
In two weeks, the new company should have a good grasp of how well your association is running and may now have ideas for improvement. Because any reputable, established management company will have a tried-and-true management system already in place and know specifically what to look for when navigating the transition between firms, switching management companies doesn't need to keep your board members up at night. With some cooperation and a solid game plan, it can be done smoothly and with minimal headaches.
Domini Hedderman is a freelance writer living in Pennsylvania.