By Deborah Goonan, Independent American Communities
During the past several years, I’ve noticed several changes in the homeowners’ association management industry. In my opinion, some of these changes do not benefit homeowners.
First, large management companies continue to buy up smaller management businesses, decreasing competition. That’s been happening for years.
But, more notably, the larger HOA management firms keep adding extra services — and revenue streams — to their business models.
HOA, condo and co-op board members may find it convenient to hire a “one-source” or “full service” management company. But is this actually good for the consumer?
Let’s look at two major management companies as examples.
First Service Residential (FSR) management
FSR recently published a news release about its buyout of Lieberman Management, a prominent company managing 250 properties in the Chicago area. According to the release, “FirstService Residential is a subsidiary of FirstService Corporation, a North American leader in the property services sector.”
First Service Corporation includes several affiliated businesses, all of which serve as vendors and service providers for the FSR management subsidiary.
Below you’ll see a screenshot of a First Service Residential Corporate web page.
Under “Additional Services” notice the following:
- Banking and Insurance Programs
- Financial Management
- Developer Services, and
- Operational Support
And at the top of the page, we can also see a menu item to “Order Documents & Certificates.” (More on that later)
When a condo, co-op, or HOA board contracts with FSR, they inevitably become captive consumers of all the company’s affiliated services.
Of course, a fully integrated company such as FSR sells board members on the convenience of having their manager acquire all the services the Association needs. Certainly, it’s a lot less work for volunteer leaders, to be relieved of the time and effort to check and screen service providers.
But, in my opinion, relying on one corporate conglomerate to serve all the Associations’ need also means that the HOA board is not taking an active role in vetting and choosing its many service providers.
So, despite the claims of FSR, (or any other similar management company) homeowners might not be getting the best value for its collective pool of money.
Management company banks and insurance policies
Let’s take a closer look at Banking and Insurance programs, offered through FirstService Financial, Inc.
Notice the range of insurance products offered by FSR through FFI.
Crime/Fidelity insurance normally offers protection from loss if an employee, including a board member or HOA manager, embezzles or defrauds the Association.
In essence, the FSR manager sells the Association an insurance policy that is intended to reimburse the Association if the FSR. manager or one of its affiliated vendors steals money or assets from the Association.
FSR can also sell its own corporation’s Directors and Officers (D&O) policy to defend HOA board members from lawsuits. A management company is highly motivated to protect the HOA board that keeps renewing its contract.
Again, in this writer’s opinion, the potential for conflict of interest is massive.
Below, see another screenshot, noting the Banking services offered by FFI.
Notice how assessments, particularly reserve fees, are funneled by the FSR manager into a FFI reserve investment account. Do you think it’s a good idea to have your HOA manager collect your money in their own lockbox, and then deposit it in the corporation’s own investment bank?
In my opinion, board members would be wise to establish a relationship with a local community bank that is not primarily affiliated with its management company. That way, the management company cannot control all the HOA’s financial activity — and reporting of that activity — from the time HOA fees are collected to the time they are disbursed to pay for services.
Almost all the big management corporations have special vendor relationships of affiliations with maintenance service companies. Associa is no exception, with their OnCall maintenance service vendors and LHR Construction (An Associa Company) for emergency repairs, restoration services, and large-scale construction services.
Now look at Associa’s insurance company, Associations Insurance Agency (AIA). Notice the wide array of insurance coverage, and the statement that AIA partners with the community manager and the board of directors.
Like FSR, Associa’s AIA sells Crime/Fidelity and D&O insurance to its HOA clients.
But note that AIA also insures associations against general property damage and flood damage.
Remember, Associa also happens to own its own restoration company (LHR) and has a network of preferred vendors to offer services that would be reimbursed by AIA.
In my opinion, there’s potential for conflict of interest here as well, because the Associa corporation apparently sells it own insurance coverage (AIA), which then pays its own restoration company (LHR) for construction in the communities it manages.
Financial reports, debt collection, and information management
In addition to preparing balance sheets, income statements, bank reconciliations and support schedules, Both Associa and FSR offer ‘turnkey collection services’ as well.
See Associa’s website:
Usually, a Third-party company buys the Association’s debt, and then aggressively pursues property owners to recover that debt, along with its added collection and attorney fees. Foreclosure is also a possibility when the homeowner is unable to repay the debt, plus fees, when demanded by the collection agency.
Both companies also work with real estate developers, and they host and manage their client Associations’ websites.
I can tell you that most management companies hide 99% of HOA community information behind a members-only password protected firewall.
As a potential home buyer, you won’t find much useful information about the Association, unless you’re willing to order and buy documents through the management corporation’s affiliated document database.
For example, here’s Associa’s web portal for ordering association documents.
These disclosure document fees can add up to hundreds of dollars, although some state laws now cap fees for documents, much to the disappointment of management companies.
Bottom line: HOA boards and housing consumers should consider the potential negative impacts of integrated management services. ♦
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