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By David Satterthwaite

Note: The following article is being reprinted from an earlier issue of the Groundbreaker at the request of many resident Boards.

One of the most important tasks in resident control is selecting a responsible management company that can work with you and manage your specific development. Selecting a management company, however, is a time-consuming process.

There are ten "fun-filled stages" in the enchanting journey towards selection:

1) Defining the task of the management company;
2) Informal negotiations with excellent candidates;
3) Issue of "requests for proposals" (RFP);
4) Review submitted management proposals;
5) Check references;
6) Interview finalists;
7) Site visits;
8) Make a selection;
9) Final, formal negotiations;
10) Final contract.

If you are starting a new development, the management company should be chosen as soon as possible. The operation of your development will be far more effective if the management company has a hand in key decisions. Following is a step-by-step guide to selecting a management company.

1. Define the Management Task:

You should take the time to define what good management means for your particular development. Every company is expected to perform basic management services such as collections, maintenance, rules enforcement, etc., but these basic services may not address issues specific to your development. What will be the role of resident involvement in the operation of the development? Will the management company participate in the social services of the development? It is important that your expectation of the management company be clear and reasonable.

2. Talk to a Few Excellent Candidates

Securing an informal commitment to submit a proposal from at least a couple respected companies ensures that you will have at least two reliable quotations to use as a standard. Recommendations about which management companies to approach can be obtained from CDC's, lenders or other developments. This step of contacting management firms before issuing a formal request for proposal (RFP) can help you put together the RFP.

3. Issuing a Request for Proposal (RFP)

Good RFP's are direct, honest and complete. While it is fine to accept a management company's standard literature, it is also important to ask specific questions that require thoughtful and unique responses. In the case of a resident controlled development these questions will most likely concern how the management company plans to empower you in the operation of your development.

A good RFP includes: a definition of the manager's job, a description of the property, a copy of the development's most recent operating budget, a description of your ownership structure, a statement of the proposed management fee, a due date for the proposal and an overview and timetable of the selection process. An effort should be made to widely publicize the RFP through media and housing organizations. It is in your best interest that as many companies as possible are aware of your need for a manager.

4. Proposal Review

A good management company will take the time to address details that may seem inconsequential. A company unable to address such details in its proposal will most likely be unable to properly manage your development.

A good proposal is quite long. It includes: a management plan for the specific property, a corporate resume, the names and resumes of the staff who will work as site and regional managers, answers to the specific questions asked in your RFP, a list of properties currently under management as well as copies of contracts for those properties, references of all kinds, a marketing strategy which is attentive to relevant regulations, a selection and assignment process for new tenants, a rent collection procedure, procedure for rule enforcement, an inspection program, a security program, a detailed procedure for the management of finances, and a capital improvement program. The review process is the best time for you to ask the management company to make specific changes in its normal operating practices. The company may or may not be willing to make such changes, but it is best to resolve concerns before the selection process continues. By the end of the proposal review stage you should narrow the candidate pool to between 3 to 5 companies.

5. Checking References

Beyond calling and writing to the references listed by the management company, you should also contact individuals who might have alternative information. Ask a wide range of questions in order to get an overall sense of the relationship between the reference person and the management company. Every story has at least two sides. Reserve judgement of the manager until you have had the opportunity to hear their version during the interview.

The object is not to find a management company which has never had conflicts with its clients, but one which approaches these conflicts in a responsible and truthful manner.

6. Interview Finalist

Interviews are generous in time (one or two hours) in order to get to know the company representatives. Interview not only a company executive (like the President) but also personnel who would work, day-to-day, on your development. A positive inter-personal relationship with the managers is essential to successful operation of your development. You should ask specific questions that require detailed responses, such as "how would you create a capital improvement program?" or "what are some policies you have found helpful in working with a resident-controlled development?" Asking each company the same questions makes comparison easier.

Good managers might offer opinions about strong or weak points in your management plan or RFP. If phrased diplomatically, such criticism should be accepted as a sign that a manager has experience and is willing to approach your job with creative thinking. By the end of the interviews you should narrow your finalists to one or two firms.

7. Site Visits

Site visits should ideally be completed before the interview process, but visits are very time-consuming, especially if you have a lot of finalists. If your finalists have been narrowed to one or two then visit the sites before the interviews. Visits can be announced and planned ahead of time, or made without notice. If announced, the tour can be led by your contact from the prospective company. Site interviews should include time with residents. You should also be aware of general cleanliness and organization.

8. Make A Selection

Often one candidate has stood out as the best choice from the beginning. If each stage of the selection process supports this initial intuition than the final selection is easy. If not, lively discussion may ensue. If a decision cannot be reached, it is better to start the process anew rather than settle for a company which might not fulfill your needs.

9. Final Negotiation and Performance Standards

If your dialogue with the prospective company has been open, then this stage will be quite brief. It is important to have concrete performance standards concerning such issues as rent collection, work orders, capital and operating reserves, etc., to guarantee that you are able measure the management company's performance over time. Performance standards are not absolute, but they deserve a place in the final contract.

10. Signing A Contract

The contract always demands that the management company perform the basic management services and that you cooperate in all necessary ways. Beyond these basic services the contract contains all the additional conditions that have been discussed throughout the selection process, such as training programs, resident involvement and performance standards. Unless the circumstances are unusual, the contract should be for no longer than two or three years with defined criteria for termination.

While the management company ultimately works for you, the selection process provides the opportunity to create a healthy give-and-take relationship. One of the great elements of resident control is that you communicate directly with your manager instead of through an absentee owner. Resident control provides the chance to overcome the traditional adversarial approach to management and allows you and your new manager to work together for a cleaner and safer place to live.

The Local Initiative Support Corporation's Guide to Property Management was an invaluable asset in preparing this article.

 

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