Many board members neglect the risks of self-managed HOAs. These risks can put an entire association in jeopardy, threatening not only its operations but also its funding. It is important to understand these risks so that board members can avoid them. Alternatively, HOA boards can decide to switch to professional management.
The Most Notable Risks of Self-Managed HOAs
Self-management is an approach that many homeowners associations take. While nothing is inherently wrong with that, the lack of professional management comes with its fair share of troubles.
Here are the risks of self-managed homeowners associations.
1. Risk of Mismanagement
Regarding the pros and cons of a self-managed HOA, a big check on the pro side is autonomy. Board members have full control over decisions concerning the community. However, autonomy also comes with a con.
Boards with too much freedom and power are likelier to abuse them. Some directors may push their agendas and force their decisions on the rest of the board. Even board members use intimidation and harassment tactics to get their way. In contrast, with a professional manager, there is someone who can act as a neutral third party.
Too much power is not the only problem, though. Even board members with the purest intentions may fall to mismanagement due to a lack of time or expertise. Not all directors have the luxury of devoting their undivided attention to the association. Moreover, managing a community requires more than just a willingness to serve — it also requires a certain level of skill.
2. Risk of Non-compliance
A big risk of self-management for HOAs is the risk of non-compliance with the law. Like it or not, homeowners associations are governed by federal, state, and local laws. There are certain requirements and procedures that HOAs must follow. Board members don’t always comprehend these requirements fully, though. Sometimes, they aren’t even aware that such requirements exist.
A typical example is the requirement to fund reserves. In a handful of states, the law mandates that HOAs maintain reserve accounts to cover the cost of major repairs and replacements. Failure to comply with this requirement can result in liability and even monetary penalties.
Even if board members understand the laws governing HOAs, there is no guarantee that they can keep up with new ones. Laws change all the time. Legislators may draft new bills that will ultimately affect homeowners associations. One such example is in North Carolina, where changes are under consideration. A self-managed board must stay up-to-date on all law changes, whereas a professionally managed one can turn to their manager for guidance.
3. Risk of Apathy
Being a board member demands a lot of time and effort. Above all, though, it requires care and concern. A member who isn’t eager to serve and doesn’t have the HOA’s best interests at heart has no place on the board. Such a board member would only be ineffective, self-serving, or indifferent.
In comparison, a professional manager is paid to manage the association. Overseeing the HOA’s operations is part of their job, which makes them more effective and determined. It also makes them more neutral about decisions, as they are not community residents.
4. Risk of Miscommunication
One of the more overlooked risks of self-managed HOAs is the risk of miscommunication or lack thereof. Communication is a key contributor to success in any organization, including HOAs. Board members must communicate with each other and the rest of the community. Homeowners should be kept in the loop about HOA matters.
Unfortunately, self-managed boards often fall victim to poor communication. They fail to send out notices on time and fail to respond to complaints or emails. However, communication is easy to check off with a professional manager or management company. They can be responsible for all correspondence, including fielding concerns from homeowners.
5. Risk of Poor Insurance Coverage
Insurance plays an essential role in the safeguarding of an association’s assets. Without proper insurance coverage, an HOA would bleed money if it ever faces perils or liability.
It is the HOA board’s job to ensure that the association has adequate insurance. However, self-managed boards don’t always know how to read insurance policies and what to watch out for. With a professional manager, though, insurance can be a breeze.
6. Risk of No Transparency
Circling back to the first point, self-managed boards often lack accountability and transparency because they don’t have a neutral party keeping them in check. This typically results in issues with fund mismanagement, such as fraud, theft, and embezzlement. There is no shortage of news reports of HOA board members stealing from their own association.
7. Risk of Inefficiency
An effective association usually runs with the help of a professional manager or management company. Of course, that’s not to say this is impossible to achieve with a self-managed board. Inefficiency is just one of the more common risks of self-managing an HOA.
Board members are volunteers who often lead personal and professional lives outside of the community. Their association duties are not always a priority. With the help of a manager, though, a self-managed board can focus on the bigger picture, leaving the day-to-day, administrative work to the manager.
8. Risk of No Advocacy
Sometimes, a self-managed board operates with tunnel vision, refusing or failing to recognize the views of others. When that happens, homeowners don’t have a voice in their community, leaving them unsatisfied and frustrated. With a community manager, homeowners can have someone to advocate for them. They can direct their concerns to the manager, who can act as a third-party neutral.
Looking for the Right Partner
As you can see, the risks of self-managed HOAs are plentiful and extensive. While it is possible for a self-managed board to navigate these risks and avoid them completely, having a professional manager increases the likelihood of success. Of course, an HOA board should choose the right management partner, as not all management companies are equal.
Clark Simson Miller promises effective and reliable management services to HOAs and condominiums. Call us today at 865.315.7505 or contact us online to get a free proposal!
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