Part of hiring an HOA property management company is paying a set fee in exchange for services to the association. But, how can you separate the reasonable fees from the questionable ones? The key is to understand how an HOA management fee works.
What Is an HOA Management Fee?
Homeowners associations don’t run on their own. They require a set of directors, the HOA board, to oversee and ensure the smooth operation of the community. These board members, though elected into their positions, don’t receive compensation for carrying out their duties. In essence, they are volunteers.
Because HOA board members usually have full-time jobs and personal lives outside of the association, they don’t always have the time or skill to perform day-to-day tasks. This is why many HOAs and condo associations turn to management companies for help.
But, hiring a management company does not come free. This is where HOA management fees come in. An HOA management fee is an amount charged to homeowners associations by HOA property management companies in return for services.
Who pays for the HOA management fee, though? Simply put, the association — and, by extension, the homeowners — pays for the management fee. The HOA board includes the management fee in the annual budget, which is then divided among all the homeowners in the community, board members included.
Does My HOA Need a Management Company?
Many HOA boards struggle with the fulfillment of their daily responsibilities either due to a lack of time or expertise. If that situation sounds familiar to you, then perhaps it is time to receive help from a professional HOA management company.
Usually, when you hire a management company, the company pairs your community with an HOA manager. This HOA manager will assist you with the day-to-day operations and act as a liaison between you and the management company.
Although the services offered can vary, most companies provide the following services:
1. Accounting and Financial Management
Not everyone is equipped to do accounting or handle the finances of an entire community. An HOA management company can take care of bookkeeping, advise you on financial matters, and assist with financial reports. Some companies perform the accounting tasks in-house, while others partner with third parties.
2. Collections
Managing the collection of HOA dues can come as a challenge, especially when you have a lot of delinquent accounts. A management company typically offers collection services in addition to financial management. Some companies don’t handle collections on their own and, instead, refer you to a collection agency they trust.
3. Rule Enforcement
HOA managers can conduct inspections for violations and coordinate with the board to enforce the rules. This can range from sending out violation notices to towing an improperly parked vehicle. Of course, HOA managers don’t take action without consulting the board first. The board still retains decision-making authority.
4. Homeowner Communication
Communication is paramount to maintaining transparency — a valuable facet of running a community. HOA managers can use a wide range of communication tools to disseminate information to homeowners. They can also handle complaints, send notices, and manage newsletters.
5. Legal Assistance
Though not all companies offer this service, some do. An HOA management company can help you navigate the often-confusing world of HOA laws and ensure you remain compliant. This can include federal laws such as the Fair Housing Act and Americans with Disabilities Act as well as state and local laws. If nothing else, a management company can refer you to an attorney with experience handling HOA communities.
6. Vendor Management
From creating and sending RFPs (request for proposal) to coordinating with existing vendors, an HOA manager can do it all. As with rule enforcement, though, HOA managers don’t get to pick the vendors for your community. The HOA board still has the final say on which vendor to choose, and an HOA manager can only offer advice.
7. Insurance
Every HOA needs sufficient protection in the form of insurance. An HOA management company can connect you with the best insurance providers and handle claims on your behalf. Keep in mind, though, that most management companies charge extra for insurance services.
How Much Do HOA Management Companies Charge?
It is important to understand that not all companies offer the same services and have the same fee structure.
Therefore, it is difficult to blindly determine how much you should expect to pay in HOA management company fees. What you can do, though, is rely on average costs.
Typical HOA management fees consist of the following charges:
Initiation Fees
This is the start-up fee or how much you should expect to pay for the company to assume the daily management of the HOA. To calculate this fee, the HOA management company considers the workload involved, such as file transitions, banking, bookkeeping, and software changes. Because this fee is reliant on workload, small communities usually pay smaller initiation fees (perhaps a couple of thousand dollars), while larger communities might pay $30,000 or more.
Ongoing Management Fees
The ongoing management fee is the regular fee an HOA pays, usually on a monthly basis. This fee is included in the contract and usually negotiated between the company and the HOA beforehand. On average, companies charge an HOA manager fee of $10 to $20 per unit per month in exchange for management services. Though, the amount can vary depending on the location and size of the community.
Exit Fees
If your HOA switches from one management company to another, expect to pay an exit fee. This is the fee charged by your current company to help with the transition process. The exit fee amount can vary wildly depending on the company. Make sure to go over the contract with your management company to see how much you should expect to pay for the transition. Perhaps you can negotiate to a lower price.
Caution: Suspicious HOA Management Fees
While you may want to believe that all HOA management fees are reasonable, the unfortunate truth is that some companies have hidden charges. To make matters worse, these hidden HOA management company costs are usually questionable in their purpose. Here are some examples of suspicious fees that some companies bill to HOAs:
1. Meeting Fees
It is common and rational to assume that your HOA manager should attend board meetings. After all, they need to know what is happening in the community to help run it. Some companies, though, will charge you extra for sending a representative to such meetings.
Thus, it is imperative that you ask your management company about their policy on meeting attendance. You might ask your HOA manager to come and be surprised about an additional fee at the end of the month. Some companies charge extra if you meet more than once a month, while others bill $50 to $100 per hour if your meetings take place after regular work hours.
2. Fees Per Instance
Some management companies charge a set fee every time they need to perform an activity. This activity, whatever it may be, can change depending on the company. Some charge you a fee per collection, while others charge you a fee for each demand letter they send.
To protect your HOA from this kind of questionable fee, you must stay vigilant and review your contract before signing it. This will save you a lot of time, headaches, and money. After all, you don’t want to increase HOA dues or levy special assessments just to make up for an oversight you committed.
3. Miscellaneous Fees
Other fees management companies can charge include newsletter printing costs, general contractor fees, inspection fees, document preparation fees, and the like. Some companies get really creative with their hidden fees and find new ways to charge you extra for something you thought was already included in the fixed HOA management fee.
Again, the best way to avoid surprises is to do your due diligence and review your management contract thoroughly. In addition, you can ask the HOA management company directly if they charge any other fees outside of the initiation fees, ongoing management fees, and exit fees.
Making a Decision
When assessing whether or not an HOA management fee is worth it, weigh the price against the services the company provides. Sometimes, the extent and quality of a company’s services justify the more expensive prices they charge. Just remember to work within your budget and make sure you get the services you need. And don’t forget to check for extra or hidden fees!
Management software can significantly reduce the amount of time and work needed to run an HOA or condo association. Both management companies and self-managed communities can benefit from Condo Manager USA. Schedule a free demo, call us at (800) 626-1267, or contact us online for more information.
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