Self Management
Weigh the Pros and Cons Carefully
In most community associations the question of whether or not to self-manage or hire management professionals arises every so often. How often these debates take place usually depends on the overall satisfaction with the type of management currently in place as well as the availability and willingness of volunteers to serve. The management topic may come up during budget deliberations or it may surface if board members are feeling dissatisfied with the type of management at a particular time. Once the management issue is on the table, board members may look at the budget line item for management and take the position that “this can’t be that difficult, so why can’t we do it ourselves?” On the flip side is the situation where “nobody wants to do this anymore.”
In some cases, especially for smaller complexes, self-management may be the only option. Many management companies prefer to deal only with larger properties for reasons of economics. But this may be changing. Some management companies are beginning to offer affordable à la carte services to smaller properties. These services include bookkeeping, correspondence, 24/7 telephone service, and maintenance help. A self-managed association could choose one or more of these services. The ability to provide à la carte services to smaller associations at an affordable fee are natural extensions of management company capabilities since the infrastructures for these types of services are already in place.
If a self-managed association is considering contracting for one or more of these services, just what will, and will not, be provided for the fee should be clearly spelled out in the beginning. There have been anecdotal reports of misunderstood expectations on the part of both parties.
What That Fee Buys
Whenever the topic on choice of management arises, contemplating a switch to self-management should be very carefully weighed. The issues involved with operating a community association are numerous and important, regardless of whether the community comprises four units or four hundred units, and the effectiveness of any method of management at a community association will have a direct impact upon the attributes listed below:
• Property value of the units
• Appearance and upkeep of the property
• Quality of life for residents
• Costs of ownership
• Financial stability of the association
If management effectiveness directly influences these areas, what are the management skills, abilities, tasks, and resources required to bring about the best outcome? Management of a community association involves “knowing a little about a lot.” A professional manager is educated and trained to have a working knowledge of insurance, governance, maintenance, budgeting, finance, contracting, and human resources. Professionals pay the price in time and dollars to acquire the requisite knowledge and expertise—a benefit to any community association.
Before You Leap
Before deciding to self-manage, numerous questions must be considered, including:
• Who will prepare the budgets and monthly financial reports—in accordance with generally accepted accounting principles?
• Who will accept the responsibility for signing off on resale documents for prospective buyers?
• Who will be on call 24/7 for every day of the year to handle complaints and emergencies?
• Who intends to live on-site for more than a few more years to ensure continuity in decision-making for capital reserve funding and repairs and replacements?
• Who is knowledgeable about proper construction specifications and quality control for major projects at the property?
• Who wants to be the neighborhood rules enforcer or monthly fee debt collector?
• Who knows what the appropriate insurance coverage is for the association and what is going on with other similar properties?
This list could go on and on.
How these and the many other tasks are handled on a day-to-day basis is critical to the people who live in a complex; people looking to buy a unit in it; the volunteer trustees; and other third parties such as insurers.
Deciding whether or not to self-manage should rest on the answers to a few simple questions:
• Do unit owners in your association have the requisite skills, knowledge, motivation, available time, and energy to serve for several years or more?
• Assuming even a smaller complex of, say, 20 units with an aggregate value of $4,000,000, would you trust your neighbors to effectively preserve and enhance an operation of this size? A community association that is ten times the size equates to an enterprise worth $40,000,000. Are you up to the task?
These questions must be considered in view of physical structures and amenities that will continually wear out as they grow older and will require more and more attention and financial resources.
 Many community associations are successfully maintained and managed by volunteer unit owners. However, there is an inherent problem with this arrangement because circumstances continually change, so the effective volunteer self-managers of today may not be here tomorrow, and once they leave, continuity may be lost. In addition to lost continuity in governance when key volunteers leave or resign, much institutional memory may also be lost. Many community associations that are more than a few years old often lack documents, records, and details of major projects, structural problems, and solutions. A management company would typically have a file system and record storage for a client association, but self-management volunteers who are very knowledgeable about the property may deliver cardboard boxes full of papers and blueprints to other volunteers who may never even examine the contents of the box. (How many roof warranties are buried somewhere in a cardboard box?) Examples of recurring problems that may have to be addressed again in the future include chronic leaks, health hazards, and mechanical problems such as with elevators and pool equipment.
The issues of turnover, ability, and motivations must always be kept in mind when considering management alternatives for a community association.
Turnover of volunteers affects continuity of operations and is a fact of life at any community association. People come and go for myriad reasons. Sometimes the moves are unexpected, such as when a qualified volunteer gets promoted and must relocate within a relatively short period of time. Then there are the circumstances of ill health or a other untimely event that prevents an effective volunteer from continuing.
The question of ability and competence of well-meaning volunteer self-managers must also be considered. Keeping in mind that many community associations are multi-million-dollar operations, people with little or no business acumen can actually do more harm than good. Those who have been in the community association management business for any length of time are familiar with poor decisions and actions on the part of directors. Some typical examples include:
• Hiring the lowest price contractor without doing due diligence
• Telling contractors how to do the job
• Not arranging for quality control on big projects
• Trying to save money by cutting corners
• Holding meetings with no agendas and action plans
Although turnover and availability of necessary skills are especially important for the self-managed, the role of motivation is perhaps most important. Motivation and personal agendas in the positive sense are a good thing for a community association. On the other hand, volunteers with more sinister or selfish motivations can be very harmful. These are some motivation positives and negatives.
On the positive side, volunteers may pursue motivations and agendas that include:
• Making decisions in a way that is fair-minded, with the best interests of the community kept in mind
• Making decisions that take the short and the long view into account
• Conducting association business in the “light of day”—in the open, no secrets.
If volunteers pursue negative motivations and agendas, these might include:
• “What’s in it for me?” decision-making
• Questionable relationships with contractors and service providers
• Short-term thinking
• Penny-wise, pound-foolish decisions
Probably the worst-case manifestation of negative motivation and selfish decision-making on the part of some volunteers is the underfunding or plundering of capital reserves. Many times has the refrain been heard, “I’m not contributing to capital reserves for the future, because I won’t be here in another five or so years!” or, “They’ll never buy this budget, so let’s cut the reserve funding amount!” A professional manager would keep the directors and membership focused on the long view and continually remind them of the need for adequate reserves.
In the end, if the decision to self-manage ends up costing more than a management fee, or if a property’s value declines or does not otherwise increase along with other similar properties, or if hard feelings develop between neighbors, deciding to self-manage may prove to be false economy.
This article appeared in the June 2005 issue of New England Condominium. | 
