Convenience and saving money are just a couple reasons why a co-op board or homeowners association would choose to self-manage a property. Though, outside managing firms and property managers are hired and employed for good reason. The job requires collecting monthly co-op and condo fees, hiring and managing staff, responding to residents’ issues, among other expected and unexpected tasks.
Pros & Cons
The primary advantages of self-management are a significant expense savings for the board or the association. “You're not getting the management fee that has to be paid which, depending upon the level of service and what the different companies offer, could be somewhat substantial,” says Stewart Wurtzel, an attorney at the Manhattan-based law firm of Tane Waterman & Wurtzel, P.C. “The second reason you'll often find, certainly in smaller buildings and sort of an ancillary to cost, is that [those boards] don't necessarily have a wide degree of companies, who really want to take on four-unit, six-unit, eight-unit buildings.”
Another benefit of self-management is the ability to take control over the direction and operations of the building. Often, management companies have their own set protocol for dealing with delinquencies or hiring contractors that may conflict with the needs and values of a particular board. “There is an issue of control. They always say, and it's so true, ‘If you want something done right you do it yourself.’ “You're turning over these very important responsibilities of running a corporation to basically a stranger,” explains Marcie Waterman Murray, who is also with Tane Waterman & Wurtzel.
Steven Troup, a partner at the Manhattan law firm of Tarter Krinsky & Drogin LLP, in charge of the Cooperative and Condominium Practice Group, advises boards that have an interest in self-management to outsource at least some of the operations to a managing agent, unless the building is very small. “It doesn't have to be a full-service managing agent but someone who can collect the rent, bill the rent and oversee projects, especially if there is no super around.” He says that a four-unit building in Brooklyn that he represents hires a part-time super to come in weekly to assist in operations and also bring in a technical knowledge of heating, cooling and general maintenance.
A self-managed board may be more involved with its residents, since they are neighbors, who are in charge but having an emotional involvement can be tricky. “Managing agents will, if they're doing their job properly, run these buildings as a business, which means if the maintenance and the common charges aren't paid, they will advise the board to authorize them to contact the attorneys for the building and commence appropriate legal action. Also, there's more of an emotional factor that might go into it, and sometimes that can be an advantage. The sympathy factor can play into this. Somebody having a legitimate hardship is likely to get a little more leeway from your neighbor who's managing the building than a professional who's managing the building. Although, everything eventually goes through the board, hopefully. But, even that sympathy factor doesn't always wind up doing the best job for the building as a whole. If somebody's not paying his or her share, then the budget has to be made up somewhere else because the bills have to be paid up,” Murray explains.
On the flip side, self-managing a building can be very challenging especially to a board that does not have extensive experience. “Your ability to manage is directly related to the quality of the people that you have in the building. Sometimes you get lucky. You have an accountant or some professionals who are familiar with some of the financial statements and obligations or some of the physical plants. Other times, you have people who just don't really have a clue as to how a building works or what's involved, and it becomes a huge learning curve,” says Wurtzel. Catching up to speed with the skills and knowledge of a managing agent can be very time-consuming, and even expensive, if you have to take classes or obtain certifications, he says.
Working with vendors and contractors can also be a gray area for board members. Murray explains that managing agents often have a wide network of service personnel that they know who can arrange for a special deal or come in at a short notice. “If you're managing your own building, unless you are also a managing agent, you don't generally have this kind of expertise, this ability to get volume discounts because the contractor knows you're going to recommend him to other buildings,” she says.
Additional disadvantages include failure to follow New York City law. “There are a myriad of regulations, permits and rules that need to be followed as well as inspections that need to be carried out periodically, and a professional managing agent usually knows all these things,” says Troup.
Not being aware of regulations and deadlines that a super or managing agent would already know can really put the board and building in trouble. Take something as small as a carbon monoxide detector. The board may not be aware that they are required to change out old detectors per a new law in New York City, says Eric M. Goidel, an attorney at the law firm of Borah, Goldstein, Altschuler, Nahins & Goidel, P.C., with offices in Manhattan and Queens. Local Law 75, enacted in December 2011, requires carbon monoxide detectors to be installed or replaced as needed. Unintentional negligence such as that could lead to fines, damages and a host of other problems.
For associations that are deciding whether to self-manage, industry insiders suggest they seek education through organizations such as the CAI (Community Associations Institute), the New York Association of Realty Managers (NYARM) or the New York chapter of the Institute of Real Estate Management (IREM). Wurtzel advises current and prospective self-managing boards to keep current on information and any changes to New York City rules and regulations by attending trade show expos, events and seminars targeted to property managers.
Self-Managing Factors to Consider
A confusing topic for an association considering self-management is determining whether or not the size of the community should predominate. In some cases, for very large buildings or high-rises, hiring a management company, or even a part-time managing agent, doesn't cost much more and results in a smaller headache for the board. “The smaller the building, the bigger piece of the managing agent fee each unit owner would have to make. The larger the building is, the less the managing fee is felt by residents,” says Troup.
But self-management, with the right tools, attitude and board members, can be done successfully in almost any size. “You get the really small buildings, which don't want to go through the expense of hiring a management company and it's almost like you're in charge of your own home. You'll also see it in very large complexes where the management fee is so huge that it pays for them to hire their own executive manager and control their own staff and things in-house. But then you will see middle-sized co-ops go for it as well. There's so many different ways to do self-management, pretty much any sized community could consider it,” Wurtzel says.
After considering the size of the property or association, the next set of variables to be studied is special circumstances unique to a respective association. Many experts advise that approaching self-management as a team situation is the best idea. “If there's an accountant in the building that is pretty good, they're going to be the treasurer. If there is a general contractor in the building, they're going most likely be responsible for the physical plant. But there's no hard and fast rule as to how it gets delegated,” Murray says.
Goidel represents a variety of properties, both small and very large, that do not hire a full-time property management company, but pick and choose services “a la carte.” This can be a good option for boards that have a tight budget but would still like professional assistance with upkeep and finances. “These managing agents are the direct employees of the corporation, the board or the condo. So you can have a middle ground there, where you are getting someone with the managerial skills and also someone with the knowledge of what it takes to operate a residential building in the city of New York. But you are cutting out some of the overhead costs that you might get with a contract with a larger management company,” he says.
In terms of liability, Goidel advises self-managing board members to ensure that they have sufficient insurance coverage to protect the board members, not only as a board member, but as managing agents of the property. “You have sometimes a situation in which damage occurs and you don't have a managing agent so you have one less layer of liability that exists,” he says. Generally, a managing agent would have their own insurance but self-managed communities don’t have that.
Aside from burnout and the possibilities of laziness or oversight, poor recordkeeping is often a problem as each successive board has a specific approach to management and bookkeeping. Troup says that many of his smaller, self-managed buildings will hire an outside bookkeeper to take care of the records and finances. “It is a huge headache removed from the board members to have an experienced individual take care of that,” he says.
This approach to association management is not a new practice and occurs all over the nation—so much so that there are companies that cater to this niche segment of the industry. Buildium, for example, has developed software that is used to manage more than 500,000 residential units in 31 countries worldwide. The Boston-based company has software for both property managers and associations. The latter software program, which can be tested on a 15-day free trial basis, handles properties from a few units to 1,000-plus units.
Whether a board elects to use a vendor for a contained software solution, as a self-managed association they will have to deal directly with contractors, which can be cumbersome. “It's one of the downsides of not having a management company, who has a history of dealing with contractors and knows who's done good work and who hasn't done good work. That's just one of those things that when they go for the cost savings, they take on these obligations themselves to have to do,” says Murray.
Experts advise boards to get multiple bids with vendors. They should also conduct extensive research both online, and ask for references from other properties. Goidel advises boards to set a dollar value of what they are willing to spend. “If you are going to start doing a large project such as a roof replacement or masonry, you need to create a bid package and have contractors or vendors bid on the jobs. You have to create a situation where there is some integrity in the bidding process, such as that the bids all go out to a certain designated group of vendors or contractors that the board has agreed upon. And the bids are all returned, sealed and opened in the presence of the entire or majority of the board, so you don't have a situation where one board member is choosing who to hire,” he says.
Self-managing a condominium or co-op certainly has its challenges but could be a viable option for well-organized and knowledgeable boards looking to save money. It is important to consider the skills and circumstances of your building to determine if self-management is right for you.
W.B. King is a freelance writer and a frequent contributor to The Cooperator. Editorial Assistant Maggie Puniewska contributed to this article.