By Peter Isakovic, Ajax Lofts
Managing a community’s construction needs is no small task. Large projects are daunting and typically fall outside the realm of most board members’ experience, skill sets, and bandwidth. HOA boards rely on their community manager to recommend “preferred” vendors that the management company has worked with before as they can bring credibility, needed expertise, and a long list of references. Most importantly to homeowners, preferred vendors can often provide their client network more competitive pricing than other “outside” vendors may charge. Boards often assume that their management company’s preferred vendor delivers the best cost and quality, but is that always the case? The short answer is no. The long answer starts with some backstory.
Our board first started battling preferred vendors when we suspected our long-time HVAC company wasn’t treating us right. While they had been a staple at our property for years and handled the majority of our previous management company’s portfolio of properties, their invoices seemed to be sharply increasing and our HVAC problems worsening. As a new board member, I had concerns and questions, but with little understanding of anything mechanical in the building, I wasn’t sure where even to begin. But something was off — so I went digging.
I started by researching the part numbers listed on our invoices, and I found the same parts from various local suppliers for significantly less money. I then called other HVAC companies — outside of the preferred network — and asked them for bids on smaller jobs, specifically requesting itemized estimates. I asked our preferred vendor do the same for comparison.
We quickly realized that our “preferred vendor” was charging more hours and a higher hourly rate for the same work and were hitting us hard with price markups on parts. After being educated by other vendors, we also learned that mechanical systems that we paid to repair were never actually addressed which created enormous future problems. We switched companies as fast as we could, and a year later, after switching to a new vendor, our building’s annual HVAC and mechanical maintenance costs dropped from a 10-year average of roughly $22,000/year to less than $4,000/yr.
This is just one of many issues we discovered as we started looking closer at our preferred vendors, and before we were through, with the exception of only our fire and elevator providers, terminated every one of them. Our board’s experience with preferred vendors highlights the pitfalls of these “preferred” relationships. Here are some tips for finding great vendors that ultimately save you and your neighbors money.
1) Review past invoices. This one seems obvious, but I can’t stress this task enough. Looking back, most of what we were overpaying for and much of the overpriced work we were signing off on was right in front us. Search reputable manufacturer websites and local suppliers for parts and educate yourself on pricing, and if you are paying double or triple what you should, question it. Also, double-check the hours and look for abuses. We realized a plumber once charged us two hours of labor for two techs (4 hours/almost $600) to get a part located 15 minutes away during lunchtime. Look at every invoice. Look at past invoices. Don’t be afraid to call out anomalies.
2) Get a second (and third) opinion. Any reputable company would love to earn your business and would welcome any opportunity to present a bid, explain the scope of work, and educate the HOA decision-makers. When it came time to replace our roof, we got multiple bids from “preferred” vendors but also consulted with other roofing companies that board members sought out based on other building referrals. The bids were staggeringly different, from $85,000-$400K. Why? Because there were significant disconnects in the scope of work being quoted, the quality of materials used, the quantities of materials included, and the warranties offered. It would have been easy to default to a preferred vendor, but we demanded detailed, itemized quotes from every vendor we contacted for the same itemized invoice, and it paid off. We ended up with a new roof for less than $140,000, completely to our satisfaction, with a vendor outside of the preferred network.
3) Ask for references — and actually check them. In addition to calling the 5-star references that “preferred” vendors provide, try to hear from the customers that left 1-star reviews too. If you can’t get in touch with them, ask the vendor for their contact info. If they don’t volunteer this information, question it.
4) Roll up your sleeves and be visible. If the community sees you walking the building with vendors, openly talking about challenges and costs, and being transparent about findings throughout the process, the community will know that board has their interests at heart, and it will make delivering bad news like dues increases or special assessments much easier because your neighbors know it protects their investment.
5) ALWAYS use legitimate contractors. Whatever qualified contractor you choose, make sure they have the all the licenses and certifications required for your building, proper insurance with high enough coverage limits, and workers’ compensation to protect any laborers in the event of injury. Bear in mind contractors with this in place will charge more to cover the higher costs of such credentials and protections, but the potential liability far outweighs the additional costs needed to ensure your property is protected in the event of any issues. ALWAYS use legitimate contractors.
6) Use YOUR contracts. If something goes wrong, the HOA’s ability to collect damages is directly tied to the language in the executed contract. Define the scope of work, required quantities, and types of materials in detail. When the contractor comes back demanding more material, you have an established paper trail that clearly defined the entire scope of the job from the start, and any estimation mistakes fall on the contractor to remedy. Any ambiguity in the contract language will not only weaken your claim but will also add many hours in legal fees to clarify and resolve in Court. Consult with your attorney and make sure the contract you sign has the language you need to be successful if legal action is required.
7) Build YOUR “preferred” network. Property management contracts end for all sorts of different reasons, and when they do, all those “preferred” relationships also go away. Having your own team of proven contractors and vendors eliminates this risk and ensures things continue to go seamlessly for your community for the long-term no matter what company is collecting the dues.
HOA boards trust their property manager to make the right contractor decisions. However, the reality is that some property managers are better than others, and some contractors shoot straighter than others. In an environment where the HOA board can simply pass costs through to the homeowner, almost as an afterthought, a lack of diligence selecting vendors can leave communities overpaying for work, stuck with continuously underfunded reserves, and facing deferred maintenance issues despite steadily rising dues.
Being proactive is critical, and the indifference of the HOA board is the single biggest risk to property value. The consequences of not doing that volunteer job right can be financially catastrophic to both you and your neighbors. Looking back, though our board was being taken advantage of, mistreated, and ripped off, all of it was actually right in front of us in black and white, printed on our invoices, approved in our budgets, agreed to in our weak contracts, and published in reviews we read after the fact. A HOA board MUST be hands-on, willing to roll up their sleeves and do the due diligence needed, and if they aren’t doing that, you need a new HOA board.
A final thought is when you do find that great property manager, great contractor, or great vendor that did the job right, leave them a 5-star review, and encourage your entire community to do the same. The HOA service industry lives and dies by market feedback. If they earn it, let everyone know. Reward excellence by sharing your success story. They will greatly appreciate it, and it also makes it easier for the next community to make the right decision.
About the author: Peter Isakovic is an entrepreneur, real estate investor, community leader, and dad. President | Ajax Lofts HOA; Vice-President | CAI-Rocky Mountain Chapter; Board Member | CAI Homeowner Leadership Committee; Lodo Drum Guy – The Guy; PoetiCo, LLC – Partner; LesseeCRE – Owner/Broker
