Selecting an Association Manager This Is A Member-Only Page Invest Web Homepage General
Selecting a qualified manager is often the hardest job of the association's board and/or officers. While most (perhaps all) states require that a manager of real property be licensed as real estate broker, the same is not true for association managers. In fact, since the association itself is not legally considered to be real estate, some states that regulate real estate brokerage and management very tightly have no requirements at all regarding qualifications of association managers. This may be because the Association's Board of Directors and Officers are responsible for management and it is left to them to be sure that any of their agents hired for management tasks be qualified.
In view of the fact that the Board and Officers might be held liable for acts of the association's agents, including its manager, it is important that care be taken in the selection of the manager. This is particularly true if the manager will have control of the association's money and/or will be responsible for the legal intricacies of association operation.
If the manager will only be responsible for maintenance, then the main issues are his expertise regarding maintenance, being sure that the costs billed by his vendors are fair, and that the workers compensation laws and tax laws are obeyed. Further discussion of these issues will be found below.
For states that require licensing of association managers, whether a separate license category or by requiring that an association manager be a licensed real estate broker, the job of finding a qualified manager is easier. Much of the discussions in our Selecting a Real Estate Agent and the Selecting a Property Manager pages will apply also to selecting an association manager.
For states that do not require an association manager to be licensed, we highly recommend that associations restrict their consideration of candidates to licensed real estate brokers. This will give some assurance of knowledge, experience, and trustworthiness. The exception to this would be that Board members or Officers personally know a non-licensed manager with significant experience and other that associations that he manages will highly recommend him.
Using a licensed manager has several advantages over using an unlicensed one.
- A licensed manager has been through some level of background check, usually including fingerprinting and a criminal record check. He was probably required to disclose any convictions and even civil actions in which he's been involved that might related to the nature of the business of the license being sought.
- For a licensed manager, the power of a licensing agency can be brought to bear against the manager if there are problems. Specific statutes and agency regulations make it easier to determine and penalize negligence or criminality.
- For an unlicensed manager, you must depend only upon statute and it might be necessary file a civil action, with the associated expense, if unable to prove a criminal act.
- Some states provide for a special fund, supported by part of licensing fees, to compensate those who have suffered financial loss due to a licensee's actions. This possibility does not exist when the manager is unlicensed.
Unfortunately, a real estate broker who is a competent real estate manager is not necessarily a competent association manager. Association management is significantly different from property management in many respects. However, property management experience is certainly better than nothing because some aspects of property management transfer to association management, including:
- Both require record keeping, accounting, and trust accounts.
- Both require maintenance supervision.
- Both require knowledge of various legal subjects, many common to both.
- Association managers interface with owners, while property managers must interface with both owners and tenants.
The aspects that are different include
- Each type of management requires knowledge about certain laws that are specific to that type and some laws of one type may not be related to laws of the other..
- Association management often requires the manager to handle the necessary membership meetings, involving tasks not usually required for property management.
The best way to determine whether a broker is a competent association manager is by verifying that he has experience specifically in association management and that associations that he has managed and those that he currently manages are satisfied with his performance. So, after you have narrowed the selection down to a few candidates, check with other associations.
If an experienced association manager cannot be found, then at least select a competent property manager who has experience in ownership and/or management of properties that have associations.
Do not select a manager based only on low bid, unless all candidates are equally qualified. Proper management of an association is fairly complex, often even more so that management of properties. Accordingly, good management may come as a shock to an association Board looking for a manager for the first time.
There is a wide variety of duties that can be delegated to an outside property manager. Different associations will choose different combinations of duties for performance by a manager. Some possibilities are:
- Schedule, organize, and run Board meetings, annual meetings, and special meetings. Generate notices, minutes, and related documents.
- Provide maintenance services, including hiring contractors and supervising work.
- Provide routine financial services including collection of fees and assessments, disbursement of funds, bookkeeping/accounting, and filing of governmental reports. Generate financial statements.
- Prepare budgets
- Generate correspondence to owners and others.
- Publish newsletter
- Deal with delinquencies including collection of late charges and other penalties. File liens against properties that are seriously delinquent.
When the manager will have control of or even access to the association's money, additional protection can be found in requiring the manager to furnish a bond. This is not normally done when a licensed real estate broker is the manager because real estate agency regulations are very specific regarding the handling of client's funds.
Most states require that real estate brokers keep their clients' funds in a trust account. This is important for a reason. Clients' funds kept in a manager's operating business account, even if properly accounted for, could be subject to attachment by the IRS (or other taxing authority) or a Court order related to personal problems of the manager. Licensed brokers are usually also subjected to regular audits by the licensing agency and proper trust account maintenance and record keeping are always at the very top of the auditor's list.
Even having a bond in place may not cover the loss of funds due to problems resulting from the association's funds not being in a trust account. Accordingly, the association should take special steps to insure that when funds are kept in a manager's account, it is a bona fide trust account. It is worthwhile to verify this with the bank directly.
Does the management company provide insurance or a bond to cover those who handle trust funds? Whether this is important depends upon collection and handling procedures and safeguards. For example, disallowing cash receipts and expenditures reduces the risk of lose.
There are some important legal issues issues related to maintenance for which the management company will be responsible.
- Does the company use third party vendors or have their own in-house maintenance division?
- If using their own vendors, what assurances are there that use and pricing will be fair?
- Does the company protect the association against liens from vendors by obtaining lien releases on major work?
- Does the company ensure that employees that work on association or members' property, whether their own or other of other vendors, are covered by Worker Compensation Insurance? Potential liabilities for uninsured workers can be extremely high.
- Does the company have proper insurance to protect the association and members against liability for property damage or injury to third parties?
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