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Dealing with D&O
Enforcing House Rules
Pool Closing
Snow - How to plan for the inevitable
What is a Management Company?
What Your Manager Should Know
Self-Management: Risky Scheme?
Why Bother to Budget?
Review Your Record Keeping
What Are You Getting for Your Management Dollars?
Article: Self-Management: Risky Scheme?
By: Alvin Wasserman
From Habitat Magazine
Alvin Wasserman is director of Fairfield Property Services in Commack, N.Y.
Windbrooke Homes is a picturesque 308-unit condominium, spread over 25 acres. One of the first to be built on Long Island, it was self-managed during its first years. It functioned in that period with a dedicated board of managers comprised of 15 members.
The board divided the responsibilities of managing the property into committees. In addition to lengthy board meetings, the committees met regularly to discuss proposals from numerous vendors and contractors. Board members donated their time to the care of the property without compensation while at the same time maintaining full-time jobs and caring for their individual households.
As the physical plant aged, the board found itself contributing more and more time to management. Fewer members of the community were willing to step forward to assume board responsibilities. The burden was falling on the shoulders of a shrinking contingent from the community.
Windbrooke was on the verge of a capital improvement program when they decided that it was time to consider professional management. Roofs, siding, masonry, and roads were a few of the major items needing repair and/or replacement. Just to consider professional management was a significant step for the board to take after so many years of going it alone. When a board recognizes when it needs professional assistance, it shows good leadership ability.
The board called a professional management company. This particular management company was well-known to some of the board, having been in business for over 20 years under the same name. Even so, the board called references, visited the management office (an important component of any management search), and inspected some of the properties managed by this company. The board decided to hire the firm and, after lengthy negotiations, signed an agreement.
The management company was invited to an open meeting to be introduced to the homeowners. About 100 people filled the local high school lunchroom to meet the managers. At the meeting, some of the homeowners expressed reluctance to bringing in outside management and others suggested that the board should have conducted a more extensive search before signing an agreement.
The management representative returned the signed agreement on the spot to the board, providing the opportunity to interview additional management companies. If the board still wanted to go forward after additional due diligence, the management company was willing to do so. If not, the board could tear up the agreement. The board held the agreement and went back to work.
Eight management companies were solicited. The management companies were asked to represent the cost of goods and services through their buying power, management fees, and any additional fees. For example, the cost of roofing materials, concrete, asphalt, insurance, and sewer treatment plant maintenance were provided.
After weeks of investigation, the board found that the original management company offered the most cost-effective management of all the companies solicited. The board provided the homeowners solid evidence to substantiate their recommendation to engage a particular management company. The community agreed.
The first day that the new management company began it was put to the test. A homeowner called to say that their waste line was clogged and needed to be cleared immediately. The property manager learned from the homeowner that the procedure followed in the past for clearing a back-up was to pull back the carpeting in the unit, break up the concrete slab, and have the plumber clear the line. Once cleared, the concrete would have to be repaired, and carpeting stretched and restored. The manager questioned this procedure since it would create significant damage to the property and inconvenience to the homeowner.
The manager called their in-house engineer to obtain an alternative solution. The answer was for the plumber to climb on the roof and snake the stoppage through the roof vent. The line was cleared in a matter of minutes exemplifying the value of professional management by saving the property damage and money.
The Windbrooke board had prepared their budget for the coming fiscal year. As noted earlier, the budget included major capital improvements. The board had developed a long-range plan with several hundred thousands of dollars of capital improvements over a number of years. The committees had competitively bid capital improvements for the year ahead. They were convinced that the budget accurately projected expenses. They were certain the best pricing had been obtained. After the first year of professional management, all of the work planned for the year by the committees was completed. The efficiencies afforded Windbrooke by the implementation of professional management resulted in a $100,000 savings at the end of the fiscal year.
Over the first three years with professional management, Windbrooke Homes continued planned capital improvements and benefited from the same cost savings of $100,000 each year. The variables that made the difference were the purchasing power, greater efficiencies, and expertise provided by professional management.
The Windbrooke board had never heard of certiorari proceedings before engaging professional management. Their property was significantly over assessed. Their management company introduced them to a certiorari attorney who filed on their behalf. The attorney would only collect a fee if he obtained a reduction and refund in taxes. Due to the considerable amount of business the attorney received from the management company, the fee to Windbrooke was 25 percent of any tax savings instead of the going rate of 33 percent.
The outcome was Windbrooke's owners received $1,100,000 in tax savings. The intervention of professional management again made a significant difference. Many boards believe they can do the job of a professional management company. It is an unfounded belief since, like any business, there are skills and knowledge that come with training and experience. A board could not walk into any business without prior experience and successfully run it and the same holds true for property management. As the complexities of management increase because of code compliance requirements, more sophisticated mechanical systems, and labor laws, the greater the risk in self-management.
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