Among the many factors necessary for multifamily residential buildings to achieve financial stability, proper budget planning, compliance, and trust among shareholders, effective fee management is one of the most important. Understanding the billing structures property management companies use with different client communities can help determine which one is the best fit for your particular building or HOA. 

Finding the Best Fit

Property management companies usually bill their client communities in one of two main ways: either by retainer, or à la carte. Which method a condo or co-op chooses depends on a number of factors, including the breadth of services they expect the management company to provide, the size and complexity of the property, and how accessible they want their manager to be at any given time of day or night. 

Kerry Patterson, executive director of property management firm Senné advises boards to evaluate the scope of their needs before committing to any fee structure and to “weigh the pros and cons of a flat retainer fee” versus paying piecemeal for individual tasks and services. “Look at what your association needs, and what you need timewise,” he says. “Don’t try to do à la carte hybrid format.” 

Patterson adds that having management on retainer can help associations budget more effectively because they know exactly what they’re paying every month and can plan accordingly. Retainer fees also offer greater predictability and narrow the service terms, says Georgia Lombardo-Barton, president of New York City-based Barton Management. “Retainer fees provide predictable costs and a clear scope of services,” she says, “while à la carte billing allows more flexibility but can lead to fluctuating charges, making budgeting more challenging.” 

Austin Pearson, managing director of Chicago-based property management firm PRG Management, suggests that the per-unit pricing structure, commonly used in HOA management, makes the billing process clear. “Simplify it based on a per-unit basis,” he advises. “HOA flat fees make sense, because there’s no reason to incentivize from an investment standpoint, which often happens in rental management.”

“You don’t want to charge a high flat fee if the HOA is not going to render different items or manage additional services like special assessments, additional board meetings, or more capital improvements,” Pearson adds. Having a set plan ahead of time and knowing which way you want to bill can save a building time and money. 

Maintaining Fee Transparency

No matter which billing structure you choose, management companies need to be transparent about fees to make sure everyone is aware and on the same page. For example, boards should “nsure that the office fees and times they are to be billed are clearly defined,” says Patterson, “and ensure that all costs are built in, including any variables. You don’t want to nickel-and-dime. Try to make it as all-inclusive as possible.” 

Lombardo-Barton concurs, and adds that the key to managing transparency is clear documentation. “A property contract should specify what is included in the base fee, what would incur additional charges, and the structure of any incidental or project management fees,” she explains. “Transparency in the billing process is key to preventing misunderstandings.”

Pearson agrees adding that “A technology platform can help offer transparency as it is often updated in real-time, which helps boards see everything.” This access helps resolve issues quickly and flags discrepancies early. “It also allows residents to track financial updates instantly, giving property managers and boards 24/7/365 access,” he adds.

Renegotiating a Contract

Even with a transparent billing process, it’s important to periodically reassess your management contract to make sure it still meets the needs of your building or HOA. According to Lombardo-Barton, “Boards should express any dissatisfaction with their management service early, with a set re-evaluation date to allow the management company time to implement any necessary changes. Depending on those results, and having given a management company a second opportunity to improve their services, a board would be better positioned to renegotiate a contract in good conscience.”

When renegotiating a contract, consider the needs of your property and the services required. Lombardo-Barton explains that “sometimes it’s challenging to ascertain a management fee based on a building’s current status. An array of circumstances could increase a management company’s time allocation on a property—violations, new DOB requirements, resident issues, capital projects, etc. 

“Since management companies don’t bill based on actual time, it isn’t easy to estimate from the outset how much time a property will require from the manager —and the opposite is also true.” She adds that it’s important to understand what is included in a base fee, and what would incur additional fees, such as [putting together] leasing/purchase packages, payroll processing, or providing project management oversight, as those tend to be the most significant fees in a management contract.”

Understanding the terms of services can help manage costs, agrees Pearson, noting that adding services should trigger a special evaluation, rather than automatically inflating the base fee. “Additional services will require a special assessment—do you need additional or longer board meetings?” Pearson points out that “Not all tasks should be bundled into the regular management fee.”

Monitoring Costs & Financial Review

Being proactive and good recordkeeping can help manage costs. “Boards should request monthly financial reports to help track and monitor their fees,” says Patterson, “This can help them compare charges against their contract and ask for clarification if there are any inconsistencies.” Regular financial reviews can help identify any unexpected charges or discrepancies before they become a larger issue.

Having a clear contract cancellation policy also helps keep management accountable. “A 30-day cancellation guarantee keeps management in check,” Pearson says, “A common mistake is agreeing to long-term contracts and extraneous fees that aren’t included in the scope of work.”

Patterson agrees and adds that monitoring automatic payments and recurring fees helps ensure the service meets the association’s needs. “Investing time and focus upfront saves a lot in the end,” Patterson says.

Lombardo-Barton emphasizes, “The board should have full access to all financial records to ensure full transparency in the management process. They should receive a monthly financial package, including but not limited to bank statements, AP and AR reports, and copies of invoices paid. These records should also be shared with a property’s CPA.”

Prompt and transparent interactions between the management team and the board is key to good management. “Look at the level of service you’re receiving. For example, Senné sends out a monthly financial package and quarterly financial reports, plus any tasks or projects that need attention,” says Patterson.

Buildings can also benefit from ongoing education when it comes to keeping up to date on management fees. Pearson points out that tech and real-time updates make it easier to resolve issues quickly. “We run seminars and town hall meetings to make sure boards are always up to date,” Patterson says, adding that “You will always find someone who can do it for less, but will they provide you with the same amount of time and experience?”