COMMUNITY MANAGEMENT EDITION

As management firms move from flat fee pricing to fees for services or a-la-carte menus, there is an increasing cry for a return to flat fee. Which is better? Well, generally, as both a management company CEO and a home improvement contractor, I will advise that it is always best to pay for what you get. Let’s look at a home improvement example. You have a plywood ceiling on your porch and it is rotted. You want it replaced and you want a price. I can easily price the piece of plywood, installed, primed and painted. But, I can’t see through it. I can’t determine whether you have rotted ceiling joists, rotted rafters, rotted roof sheathing or wet/moldy insulation. But, you insist on a flat, fixed price. I have two choices: price the replacement of only the plywood, even if that means attaching it to rotted structural members –or– assume all those conditions exist and price accordingly. Now, if I find that those conditions don’t exist, I profit. If they do, I don’t lose. Which is better for you? Seems like you’re forcing the process to be a gamble and you cannot win.

Management is the same. Most of the extras that management firms are charging for are services that are not typically offered at all communities or are not provided at the same level or in the same quantity. Take violations, for example. We have communities that do not cite violations. We have others where 80% of homes receive a letter every year. How do I offer flat pricing when I do not know what you will do this year, next year or beyond? Some communities participate to a great extent in our electronic notifications process, so mailing costs are reduced for them. Others don’t. I cannot forecast your level of participation.

Some of the more time consuming expenses and those most often priced as extras include postage, printing, mailing processing, delinquent accounts processing and legal turnovers, court appearances, extra meetings or site visits, issuance of pool and parking passes & administration of parking programs, clubhouse rentals and architectural application or violation processing. There is no way to fairly price flat-fee management to include an unlimited number of these tasks. Fair means fair to both parties. You may get a deal from an inexperienced management firm that includes these tasks at no added cost. In a few years, you’ll be changing management again because they raised their fees or they will be out of business. Most community management firms are operating in the 5% to 15% profit margin. 15% is good. 5% not so good. Even with all this nickel and diming, we’re not running to the bank every day with our huge profits.

In the home improvement example, it’s fair that you allow the contractor to assess the situation. This means getting into the job and seeing what is presently hidden. He can price the various components without seeing them, but you enter the agreement knowing that if one joist is bad, $100 will be added, if two, $150. If the rafters are bad, another $1,000… or whatever. Then, once the ceiling is open, you’ll know and he will know the extent of the work and the agreed price. Management is the same. We tell you how much each task costs and we charge based on actual experience. It’s fair to the management firm and fair to the client. The alternative is fair to only one side and that is not good for an on-going or long-term relationship, which is what you really need most from your management firm.

Chris Majerle, PCAM
www.AccessMMI.com