Scott Brady is co-owner and principal of Progressive Association Management, a CACM-member HOA management company serving 228 communities and nearly 15,000 homeowners throughout Southern California. Since founding the association management division in 2020, Scott has grown the company into the fastest organically growing association management firm in California by limiting manager workloads, providing full back-office support, and holding every team member accountable to documented daily service standards. |
When you hire an association management company, you are entering into an important relationship. For many management companies, it is easy to get into that relationship by signing a contract but much harder to get out of one. Not only is the process of changing companies arduous because owners must set up new accounts and the board must use the management company’s bank and software, but many management contracts are not easily cancelled.
Few companies are like Progressive, where a board can terminate the agreement at any time for any reason with a 60-day notice. Most require “cause,” have a right to fix the problem, and many only allow cancellation during a very specific window. If that window is missed, the contract automatically extends for another year. If you ask the right questions and perform proper due diligence, you should be able to find the right management company for your community. On our website, we provide a list of 20 questions to ask, but you should start with these 10.
The 10 Questions Every Board Should Ask
1. How Many Associations Do You Manage in Southern California? California? The Country?
There are large, multi-state companies that manage hundreds of associations and hundreds of thousands of owners, regional companies that manage 100 to 500 associations, and smaller “mom and pop” companies that manage 10 to 50 local associations. Generally speaking, the larger the company, the greater the resources and the stronger the back-office operations. A small local company may not have departments, adequate checks and balances, or sufficient insurance, but they often provide a higher level of personalized service. A small company may not be able to handle an association with 500 or more owners and ample community amenities, but they can take excellent care of a 20-owner community with few common area responsibilities. The larger companies typically charge more due to their substantial overhead and will usually charge more for services beyond the base management fee.
A good rule of thumb: the smaller your community, the smaller the company you should consider. A small community has 10 to 50 owners, a medium-sized association has 50 to 150 owners, and a large one has 150 or more. Unfortunately, many smaller companies have gone out of business in recent years because they could not pay their staff what the large companies were paying, and family members were not interested in taking over such a complicated business. Just as it has become more complicated to serve as a board director, it has become more complicated to manage associations. Many mid-sized companies have also sold to larger firms. There has been massive and aggressive consolidation in this industry. There are still a few independent options out there, and they deserve a chance to interview for your business.
2. On Average, How Big Are the Associations You Manage?
It is hard to be all things to all associations. Just a few years ago, small management companies managed small local associations with 10 to 50 owners, medium-sized companies managed associations largely within their county with 20 to 200 owners, and large multi-state companies preferred associations with 100 or more owners, specializing in huge master-planned communities with 1,000 or more owners.
Everything changed just before COVID and the industry is still in flux. Small companies simply could not make a profit with smaller associations because increasingly complex laws required additional staff and resources they could not afford. And like many other industries, with so much capital available, investors began targeting association management as a stable, subscription-based business impervious to technology and artificial intelligence. They targeted commercial rental businesses, landscaping companies, HVAC providers, and then association management.
Mid-sized companies, those managing 100 to 500 associations with 5,000 to 50,000 owners and annual gross income of $2 to $10 million, were offered significant sums to sell, either to large firms with equity lines or to new entities buying management companies across the country. Even though the number of associations keeps climbing and fewer are self-managing, the number of management companies has declined significantly. In Southern California, where there are perhaps 20,000 associations, there are perhaps only 50 management companies to choose from.
So ask: on average, how large are the associations you manage? Ask for a report. That report should show the total number of associations and total number of owners, which allows you to calculate the average. If the average is 300 owners and your community has 30, that may not be the right fit. If your community has 300 owners and the average is 30, the same holds true. Most companies have a “perfect client” they are built for. Make sure you are that client.
3. On Average, How Many Associations and Owners Do Your Managers Handle?
This is one of the most critical questions and can be the hardest to get a straight answer on. Most large companies expect their community managers to manage a portfolio generating at least two to three times their total compensation. If a manager earns $10,000 per month including benefits and taxes, the company wants that person managing $30,000 in monthly base management fees. For example, if the average community size is 100 owners and the base monthly fee is $1,500, a manager might be responsible for 13 to 20 associations. That translates to 1,300 to 2,000 owners, 50 to 80 board members, and hundreds of vendors. If your community has 50 owners, it is easy to get lost in that crowd.
If possible, ask to interview potential managers and request information on their current portfolio size. The smaller the portfolio, the more time they have to provide the appropriate level of service to their boards.
4. Can We Cancel Our Contract at Any Time?
Unfortunately, most companies will promise superior customer service and a first-class experience during the sales process but then require a contract that is difficult or impossible to cancel. If they are confident in their promises, shouldn’t they be willing to pay a price if those promises go unfulfilled? If a company refuses to offer a 60-day cancellation notice, push for an agreement that runs for only 6 or 12 months without a cancellation option, after which the contract goes month to month.
5. What Is Your Base Management Fee and How Do You Calculate It?
We believe upfront, transparent pricing fosters trust with our clients and starts our partnership on the right foot. Most management companies ask you to complete an online form and then provide a monthly management fee that seems pulled out of thin air. Ask what factors are used to calculate the fee and whether the same pricing applies to all communities your size. Equally important, ask whether there is an automatic annual increase built into the contract. Even if inflation is 1% for the year, some contracts include an automatic 4% increase regardless.
6. What Are the Other Fees You Charge? Please Provide an Exhibit of Your Fees.
The trend in the industry is to advertise a low base monthly management fee and then layer on additional charges for reimbursables such as paper, printing, postage, envelopes, and ACH fees, as well as fees for coordinating with other service providers including attorneys, reserve study specialists, CPAs, and collection agencies. We have seen total additional fees exceed the base management fee, with one line item for the base fee and another 15 for extras.
At Progressive, we have embraced an “all-included” model. We charge a base management fee plus $5.25 per owner per month for all other costs. The only additional charge is for the annual disclosure package sent to each owner, which can be many pages in length and expensive to mail. For the other 11 months, our boards receive a single combined line item. No surprises.
7. Why Your Company? What Makes You Different?
Just like every person, every company is different. It is not just the name, logo, and location; it is the culture, value proposition, business model, and structure. Simply ask: there are many association management companies we could hire, why should we hire yours? They should be able to answer that question quickly and confidently.
At Progressive, we partner with our associations and limit the size of each manager’s portfolio to 10 associations or 1,000 owners so they have more time to dedicate to their boards. We are local and family owned and strive to develop our managers into true board consultants and community experts. Since this can be a demanding job, we allow them to manage from the comfort of their home while holding them to a high standard. We are so confident in our promises that we offer 7 Performance Guarantees. If we do not perform as promised, we pay a real financial price. That is different.
8. Everyone Promises Great Customer Service. How Do You Actually Deliver It?
No company you interview will admit to inferior service or mediocre management. The promises will all sound the same: superior service, first-class management, team members who care. Once the contract is signed, many move on to the next association and make the same promises again. If a company promises a better experience, ask not only how they intend to deliver it but what specifically enables them to do so.
Check their Google and Yelp reviews and pay close attention to how management responds to negative ones. When you manage thousands of owners, some negative reviews are inevitable. They may not always reflect the management company’s performance; sometimes it is a board decision an owner disagreed with, a difficult neighbor, noise from a tenant, or general frustration with the community. But a management company that cares about its reputation should respond to both valid and invalid reviews. The only real way to assess your likely experience is to look at the experience others are currently having and what both boards and owners are saying about that company.
9. What Are the Escrow Documentation Fees When Selling?
Boards rarely read or negotiate these fees, but they should. The attitude is often: who cares what the management company charges an owner who is leaving? But most owners eventually become sellers and will pay this fee directly. Why should the few who sell be penalized financially to benefit the many who stay?
By law, escrow documentation fees are required to be “reasonable,” but what is reasonable for one company seems very unreasonable for another. Most companies charge a transfer fee for the labor involved in transferring the seller’s data to the buyer, and a demand fee for preparing the form that states what the seller owes the association. On top of that, they may charge separately for governing documents, a rush fee, and even an escrow initiation fee. The actual cost to a management company to prepare these documents is nominal, which means the profit margin can be significant. We have seen companies charge anywhere from $500 to $2,000 for these documents.
Boards should review and negotiate these fees to ensure they are fair to owners. Seventeen other states have already capped these fees, and if the practice continues unchecked in California, a similar cap may be on the way. You can learn more about how escrow services work and what to expect.
10. Have You Ever Been Terminated by an Association, and Why?
This is one of the most revealing questions you can ask. How a company answers it tells you a great deal about their honesty, self-awareness, and accountability. Any company that has been in business long enough has lost a client at some point. What matters is why, and what they learned from it.
If you are ready to explore what the right management partner could look like for your community, we would love to talk.
