There is an old saying that claims, “The more things change, the more they stay the same,” and that is not a happy thought for a board of directors or an association looking to change property management firms. The turmoil of replacing a management company is guaranteed to be costly, not only for the board, but for the entire community. Thus, make sure the necessary changes are actually achieved through an alteration in management.

If real change is the desired result, how does a board or association prevent merely swapping out one set of problems for another? Is there a formula to assure a successful change, or guidelines to ensure a positive swing in direction? What questions should be asked of a prospective new management company before signing contracts? How does one spot a red flag? When does the search process begin? Since board members are typically volunteers, simply making the decision to change management could be problematic.

Begin at the Beginning

When a change in management is imminent, the process begins with the board. Each member must understand the problems with the current firm and what changes are expected. First, inquire if the problem represents a personality conflict with the current manager. If a different manager (within the same management company) can better communicate and work with the board, change could be accomplished quickly and seamlessly by replacing the manager alone.

By taking critical inventory of the community’s issues and expectations, a board can identify whether their dissatisfaction with the current administration is with the manager specifically. If repeated requests made to the management office itself have gone unanswered, or have been addressed unsatisfactorily, the trouble is deeper and with the company as a whole. By identifying areas where problems have occurred, the time frames and individuals involved, a board can better understand what is working and what must change.

“There are a few questions a board or hiring committee should ask a prospective independent manager or management firm before deciding whether to retain their services,” says Thomas Chilenski, CMC, president and senior property manager of Cedarcrest Property Management in Fairfield. “The first is ‘how often will the property manager perform a comprehensive site inspection?’ The second is ‘how many properties do they manage, the sizes and locations, contact information for recommendations, the back office support staff size, and experience.’ And finally ‘What does your company do that separates you from your competitors?’”

Have an attorney review the current contract early in the process to determine the best way to legally separate from the property management company, and to identify areas for the positive change legally. When a decision is made on a new management firm, the attorney should review the new contract and documents before anything is signed; while some board members may argue the expense of involving an attorney in the process, due diligence by a legal pro can spot potential problem areas and costly pitfalls, and avoid them.

Work the Details

Andy Ashwal, executive director of Manhattan-based KW Property Management & Consulting, typically has a few questions for boards and associations looking to make management changes. “What do you like about your current property management firm and what would you like to improve?” he asks.

Education goes both ways with this approach and it may help define goals and expectations. Ashwal expects a board to ask a prospective firm about any affiliation with other companies, accounting, and preventive maintenance. When a firm has a financial interest in other companies and/or vendors, conflicts of interest can exist.

Other boards may prefer this type of arrangement and view it as a savings of time, dollars, and effort. It is an individual board preference, but should be transparent. “Accounting,” states Ashwal, “is the lifeblood of a business. An accrual system gives a more accurate picture than cash-based systems.”

A board should ask who keeps the books—an accountant or a CPA―and what layers of checks and balances are in place. Other important questions he recommends asking pertain to certification and assisting in and/or passing an audit, and he would expect companywide standards for preventive maintenance programs. He would like to know if a prospective firm has easily accessible templates and a repository of forms in a company “tool box” to prevent re-inventing the wheel for every issue.

Ashwal would also encourage a board to inquire about the number of additional properties their manager is assigned, and if that number increases, would notification be provided. “Will there be scheduled office hours for our property manager, and will those hours be on-site?” he asks. For a board with goals of improved customer service, these are important questions.

If an association opts for a portfolio management firm, the property manager may oversee numerous properties, limiting on-site time and attention available for your community. Never assume. Always ask. Property management firms are as varied as the properties they manage. Deciding what services a community expects to pay for is part of the selection process. When the board or hiring committee has established expectations for a new firm, the budget can define what is affordable and possible.

Ashwal acknowledges there are numerous reasons for changing management, but a new board should never forget that it is a business with employees, customers, and a budget. He advises a detailed business plan to help guide a board’s goals and expectations.

Kenneth M. Morrison, the president of Lemor Realty Corporation and accredited by the National Association of Home Builders (NAHB), believes fiscal responsibility is the number one requirement for a property management firm. Another area on which he suggests focus involves state, city, and federal laws and restrictions, also called “asset management.” If a management firm fails to prevent violations and fines when laws and regulations change, a property’s assets can greatly diminish. A quality property management firm will keep the board apprised when changes require corrective action. Morrison would expect and encourage good communication between the board and the manager on all issues to keep everything personal and timely.

Attorney Martin S. Kera, a principal who is with the law firm of Kera & Graubard and Bren Management Corporation, has three decades of experience with all aspects of property management. In his experience, the interview process with a new management firm usually starts with reasons why the property is seeking a new agent. Usual comments range from “the agent is non-responsive to our request,” or worse, “they embezzled our funds!”

Just about everyone asks, “How many buildings do you manage, and how many people do you have on staff?” Boards want to know if an agent will be assigned to the property and how many times they will visit, inspect, and perform functions such as bookkeeping, and/or supply reports.

After the initial interview, Kera suggests to call the person assigned to your account and see how quickly they respond. Are there excessive voice mail or menu prompts? Often, the larger firms have different agents assigned to different duties (i.e. one writes checks, others deal with construction or monthly payments). The board should decide whether they want to deal with this arrangement on a regular basis.

“A small management company has everyone servicing all the accounts; that may better serve your interest. Concerns of most residents and board members are how fast their managing agent responds to their emails or phone calls and building needs,” says Kera.

Red Flags and Deal Breakers

When due diligence is finished and details fully explored, the experts recommend a few additional questions to prevent buyer’s remorse or unwelcome surprises. Two important areas Kera finds overlooked are construction and closing procedures. Closings and mortgage refinances are a big issue. When you refinance, the banks have questionnaires, and agents who respond slowly—while charging an additional fee―are frustrating. “The board should also ask how the managing agent handles major construction projects and routine projects,” he says.

“Boards should diligently check references,” says Chilenski. “Poor referrals and recommendations would be a red flag. Another red flag would be lack of experience of the company and selected property manager.”

Furthermore, Chilenski suggests that boards search the web for reviews. “Search the property management company name and owner individually,” he says. “You may find lawsuits, liens, and other unsavory info that you can further research to verify.”

Ashwal would suggest additional questions if the management company expects to be a signer on the bank accounts, or shies away from any suggestion of a third party audit. Both are potential red flags.

Finally, before anyone signs on the bottom line, it’s imperative to have an attorney review all documents and proposals one last time for any errors or oversights. If the hiring committee and/or the board have taken sufficient time and effort, hopefully it will be a long while before another change is necessary.

Anne Childers is a freelance writer and a frequent contributor to The New Jersey Cooperator. Staff writer Christy Smith-Sloman contributed to this article.