Unblurring the Lines: PM v. HOA Agreements

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In communities with an HOA, the line between rental and HOA management agreements is often blurred. Telling them apart can be confusing, and it’s hard to find unbiased answers to a lot of your questions.

To clearly define the difference between HOA management and property management, we’re breaking down 4 commonly asked questions.

What are my basic management options?

Years ago, HOAs did not give homeowners many choices: whoever managed the HOA also managed all the vacation rentals in the building. This practice created a number of problems because, at a minimum, it caused conflicts of interest. The lack of competition often resulted in astronomical commission rates and poor service for which homeowners had no recourse. It also put the HOA Board of Directors (BOD) in a difficult position because forcing owners to use a service provider against their will created nothing but problems within an association. Doing so was not only difficult to enforce but, in many cases, illegal.  

This gray area made it difficult to unblur the lines between HOA and vacation rental agreements, especially since many HOA BODs only received information from one biased source.

Today, defining exactly what services are included in an HOA and vacation rental management contract helps separate the two. You now have more choices about how to manage your vacation rental:

1. Manage it on your own: You can always manage your rental yourself. Carl Shepherd, the founder of HomeAway, commented: “Just like representing yourself in a court of law, you shouldn’t be forced to use a service provider at all, except in cases where building code or compliance issues exist.”  For example, you can’t rewire your condo if you are not a licensed electrician.  But you can take reservations directly or even clean your home yourself.  Doing so takes time and industry know-how; it’s a full-time job, especially as companies like VRBO change their business models and guests increasingly expect a consistent, hotel-like experience.

2. Manage it on your own, with some help: You can hire a few owner service providers (OSPs) to handle specific management tasks as needed. To help manage bookings and guest inquiries, you can use an after-hours phone service.  A designated a local handyman can check-in on your home while you are out of town, and having plumbers or electricians standing by in case of an emergency is helpful. Hiring OSPs helps take some of the work off of your plate, but it’s a piecemeal strategy. You still have to coordinate the management of your home which includes finding high-quality reliable people to look after your property, continuously monitor their service levels to make sure they’re doing a good job and diligently replace them when needed

3. Use the designated manager: If your HOA does choose a preferred manager, you can always use them to manage your unit.  Most legally-savvy HOA’s chose a preferred manager but do not restrict owners from choosing a different property manager. John Banczak, HOA board member for The Resort at Squaw Creek, explains “most of our owners use the preferred management company; however, we purposefully do not restrict owners from using the manager of their choice.  We believe it is illegal to force them to use a service provider and at the end of the day as a board, we don’t want owners blaming us for poor revenue performance, bad maintenance, or rental program impacts on the value of their investment.  We are more than happy to let our owners make their own decisions – they are all smart people who have the right to work with the company of their choosing.”  HOA-designated programs often have higher commissions of up to 55% in some locations as well as high maintenance and housekeeping fees.

4. Choose a full-service property manager: You can use a full-service vacation rental property manager but make sure to research carefully. Many of these companies use the same outdated business model as the HOA rental programs, so they have the same issues, such as high maintenance and housekeeping fees, with only slightly lower commissions of about 30-40%. Tech-savvy, innovative vacation rental management companies help make you more money and provide a terrific guest experience at low costs. They act as your single point of contact and handle the entire guest experience from booking to check-out as well as housekeeping and maintenance to ensure your property is well cared for.

What’s the difference between an HOA and vacation rental agreement and what’s included in each?

A rental agreement is a legal document between a homeowner and a rental management company; it is independent of the HOA agreement. A rental agreement covers the commission rate, unit rental maintenance, and housekeeping arrangements.

The HOA management agreement is a legal document between the HOA BOD and the HOA management company for services provided to all the homeowners. It contains the scope of services and charges for those services. It generally includes HOA accounting, common area management such as lawn care, common area housekeeping and pool and hot tub maintenance.  It does not impact rental agreements unless the HOA BOD has “tied” other rental amenities such as shuttle and front desk services to this agreement.

Many HOA management companies have blurred the lines regarding amenities and who can access them. For example, they might say that your guests cannot use the shuttle unless you rent through them. In most cases, this statement is false because access to the shuttle is covered under your HOA dues.  

Does the HOA agreement impact my choice of vacation rental companies?  

If your HOA BOD has not tied services to the HOA management agreement, you are free to use any rental management company, and your guests have access to all amenities since you have paid for them through your monthly HOA dues. All costs are split by each unit, and everyone has access to all the amenities.

If your HOA BOD enters into an HOA management agreement that ties the rental program to a specific HOA manager, you might not be able to use a different full-service rental company. Many HOA management companies that also have rental programs convince the HOA BOD to include rental services in the HOA management agreement to keep competing rental companies out.

When defining the scope of the contract, the HOA manager may present the HOA BOD with two options regarding rental related items like shuttles in a ski town:

Option A: Everyone can use the shuttles if each owner pays $100.  

Option B: Everyone pays $50 but guests cannot use the shuttle if an owner uses another rental company.

The HOA BOD then has to decide which option to choose. The HOA management company often presents Option B as saving homeowners money, but in reality, this type of agreement limits choices and ends up costing rental owners more. What they lose in paying the high commission is more than the $50 “savings” in fees. Especially if the HOA BOD is made up of non-rental owners, they may lean toward the seemingly less expensive option since rental management choices are not a priority for them.

What can I do if my HOA BOD has tied rental services to the HOA management company?

If you are in a property where you have a restrictive HOA agreement, these HOA rules can only be changed by the HOA BOD. You and other condo owners in your building can work with your HOA BOD to change or renegotiate the contract. Only the HOA BOD can “tie” or “untie” this restriction if it is in place. It is important to be involved when the HOA BOD is negotiating the HOA management agreement on your behalf to make sure the HOA BOD is representing your best interests.  

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turnkeyvr
TurnKey General Manager of Steamboat Springs

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