Evaluating Your Management Fee

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A management fee is what homeowners collectively pay to a professional property management company in exchange for handling the HOA’s day-to-day operations, administrative tasks, and assigning community management professionals to help with these and other duties. Some management fees are considered “all-inclusive,” which means they’ll cover extras like newsletter mailings and architectural applications. Meanwhile, a “non-inclusive” management fee only takes care of the essentials, so add-ons like newsletters or architectural reviews will be billed separately. Regardless, every management agreement includes a section outlining the management fee and exactly what’s covered.

The tasks covered by the management fee are undeniably critical to running a successful HOA. Let’s face it—no community can function properly without hiring and training a community manager who handles operations, administrative duties, board meetings, and the general needs of both the board and homeowners. An HOA is, at its core, a business, which means it requires a capable team to manage a variety of tasks that go beyond the scope of this blog. But if you’re on the Board of Directors trying to evaluate whether your management fee is both appropriate and aligned with the service you’re getting, it’s pretty tough to do so. The more inclusive a fee is—that is, the more items folded into a flat monthly rate—the harder it becomes to break down the cost of each service and confirm you’re paying a fair rate. When corporate management firms take advantage of this ambiguity, it’s easier for them to pad their profits because it’s so complex to determine the true hard costs.

Here’s an example: imagine a fictitious HOA pays $2,500 per month in management fees. According to the management contract, that covers:

1. An assigned community manager
2. Organizing and attending a monthly board meeting
3. Weekly drive-throughs to enforce the community’s rules & regulations

This is a straightforward management fee bundle. The Board might try to ballpark the costs for items 1–3 to decide if the fee seems fair. But here’s the problem: it’s nearly impossible to validate those costs, and even if they look okay at first glance, you can be sure the management company is profiting comfortably, because they can likely deliver the same service at a lower cost.

Let’s look closer at #1, the assigned community manager. Corporate HOA companies will often say, “These costs are justified because we have to hire and train each manager, run payroll, offer benefits, purchase insurance, pay taxes, etc.” While that might be true, they’re leaving out the real specifics. And you’re left with more questions than answers:

• Your community manager might be assigned to multiple HOAs—often 6 to 10. So how is that cost divided?  

• • What’s your fair portion?
  • Which other HOAs does that manager support, and how is their time allocated?
  • Are other HOAs receiving the exact same level of service as you?
• Property management companies have an existing HR framework in place for all the HOAs they manage. 
  • What does that cost look like, and how much of it should fairly be passed on to your homeowners?
    
• Yes, paying for the community manager’s benefits may seem fair, but the management company can’t disclose if the manager even uses their medical benefits without risking HIPAA violations. Some folks are on a spouse’s plan, costing the company nothing, whereas a family plan might cost $10,000–$20,000 a year.
• Charging the HOA for insurance (like workers’ comp) might feel logical—the manager could get hurt on the job—but does that cost factor in the company’s umbrella policy discounts? And if another HOA’s manager gets injured, does your community end up sharing the increased premium costs?
• Many management agreements include language allowing fees to rise with inflation (based on the Consumer Price Index).
  • Would a fixed escalation rate be better?
  • Should your management fee even be going up at all?
• As new units finish construction and phase into the HOA, how should your fees adapt? 

• • What’s the charge for each additional home?
  • Should the per-unit fee decrease as your community grows?
    

Don’t be surprised if, when you bring up these concerns, the management company keeps its cards close to the vest. Too many boards sign contracts without realizing how much money it will cost homeowners and reserve funds. That’s precisely where Boardwise comes in. Thanks to decades of insider experience, we know exactly which cards the management company is holding. We can dissect real expenses from profit margins and advocate on your behalf. We know when your HOA contract is overpriced, and we’re able to read between the lines and see past deceptive contract language. We also understand the various revenue streams and how two otherwise identical HOAs can end up paying wildly different management fees for the same service—sometimes without even knowing it.

Ultimately, every HOA Board deserves to understand exactly where their money is going—and why. That’s where Boardwise can help you see through complex contract language, determine fair costs for assigned community managers, and protect both your homeowners and reserve funds. If you want to take the guesswork out of your HOA’s management fees, Boardwise is here to help you make confident, cost-effective decisions for your community.