Category: HOA Contractor Software

Purpose

This report will discuss three specific factors that are impacting the homeowners association (HOA) market. The three factors are: 1) the California (CA) minimum wage increases, 2) infrastructure degradation, and 3) increased competition. All three factors will bring significant financial implications to Vendors, Property Managers, and Properties (i.e., occupants) and require a paradigm shift to effectively offset costs.

1. Impact of CA Minimum Wage Increases

The HOA market is a services industry (landscaping, janitorial, building maintenance, roofing, asphalt, etc.) that requires manual labor to perform the work. That being said, the single largest expense for most companies is labor, which oftentimes comprises over 50% of the operating expense budget. Most of the work requires  low-skilled employees who receive a state-mandated minimum wage. California (CA) recently passed legislation for a five-year minimum wage increase (Exhibit 1). 

Exhibit 1 – CA Minimum Wage Increase (www.gov.ca.gov/docs)

The CA minimum wage increase is expected to increase labor costs by 50% for employers from 2017 to 2023 (Exhibit 2). The impact of a $0.50 minimum wage increase will result in an additional $1,000+ annual labor costs per full-time employee (2,080 hours annually). A $1 minimum wage increase will result in an additional $2,000+. For an employer with 25 employees being paid minimum wage, the company will experience a $50,000 increase in operating expenses with a $1/hr minimum wage increase. The CA minimum wage increase is estimated to increase Vendors’ contract prices by 40%, which, in turn, will raise individual homeowners’ assessments by 25%. 

Exhibit 2 – Impact of Minimum Wage Increase

Here are the impacts to the three primary groups involved in HOAs:

• Vendor

• • • Shrinking manual labor pool – labor is moving to higher paying construction jobs; E-Verify is reducing the illegal labor force
    • Decrease in employee morale – “I have been working here for 10 years and am making the same as an entry-level employee” 
    • Reduction in labor hours and increased workload – decreases quality; increases burnout
    • Setting expectations – Vendors waste time responding to unhappy homeowners if requests are not articulated upfront
    • Declining margins

• Property Management

• • • Vendor turnover – increased time to generate RFP’s, interview, and onboard new Vendors
    • Unhappy homeowner response – increased complaints due to decreased Vendor labor hours and quality 
    • Quality control – increased Property Management (PM) hours to ensure Vendor quality
    • Homeowner outrage – dealing with unhappy homeowners due to assessment increases
    • Disruption in Vendor relationships between PM and/or homeowners

• Property

• • Increase in monthly assessments – fees must increase maintain quality as contract prices increase
  • Decline in Vendor service – quality will decline if contract prices do not increase
  • Owner occupancy decline – owner occupiers are leaving and investors are renting units
  • Decline in PM service – most PMs oversee between 4-6 properties and Vendor turnover will reduce time for PM to focus on homeowners’ issues
  • Decreased communication with homeowners from Vendors and PMs
  • “We want the Ferrari but only have the funds for a Toyota”

2. Infrastructure Degradation (Reserves)

• “All stakeholders, including legislators, will need to recognize the imperative for associations to conduct reserve studies and to fund reserves based on those studies. Lack of resources will remain the primary hindrance to association success until reserve funding becomes mandatory.” – Community Next: 2020 and Beyond (Community Association Institute, July 2016)
• 64% of community associations (222,500 of 347,000) were built between the years 1980 and 2000
• These communities are within the 20- to 40-year timeframe when major repairs are needed
• Major repairs include roofing replacement, plumbing infrastructure renovation, irrigation replacement, asphalt removal and resurfacing, pool resurfacing, elevator repair, tennis court renovation, compliance with new environmental and energy-saving standards, etc.
• In 2016, community associations allocated $25B in special assessments for major repairs
• As communities continue to experience common area degradation over the next decade, special assessments must increase in order to pay for the necessary major repairs

3. Increased competition

• Larger corporations (equity-funded companies) are consolidating small businesses in Vendor and Property Management segments  
• Contract prices are declining as a result of the build-to-sell mentality
• Increased mergers and acquisitions are changing the makeup of the industry as customer service and quality is declining
• 2.12 average rating – over 3,000 individual Yelp and Google reviews on nearly 100 Property Management companies across four major cities in the U.S.

4. How to offset costs

• Layoffs
• Salary reductions
• Increase contracts
• Employee efficiencies
• Potential repeal of minimum wage increases
• HOA property maintenance software

Conclusion

In summary, economic and industry forces are bringing significant financial impacts to the commercial association maintenance market in the years to come. It is critical that Vendors, PMs, and Properties take action to offset these costs in order to maintain the status-quo. The solution starts with Vendors to determine efficiencies and other cost-cutting means to minimize the negative impacts facing this industry. 

go home and be happy,

Brian & Tim (Co-Founders)

Contractors who use property maintenance software are better positioned to outperform their non-software adopting peers in the long run. This is because the contractors who make the shift from offline to online are able to satisfy their clients’ increased expectations of high-quality service utilizing technology, and are able to reap the operational and administrative benefits of digitizing manual processes. There is no denying that the COVID-19 pandemic has forever changed the nature of work. Forward-thinking leaders must take action today rather than being reactive once the pandemic dissipates. 

Client Expectations

It’s hard to find somebody nowadays who hasn’t ordered something online, whether it be clothes or a household item, a video streaming service, or a meal delivery service. None of these online services could have existed until recent technology advancements, and ironically most of us today couldn’t imagine a world in which they didn’t exist. The ability to use a smartphone to find a need, and after only a few presses of a button have that product or service get ordered, didn’t exist ten years ago. 

We are still in the beginning of technological change but the perception by most consumers is that these services, built on technology, simplify and bring more joy to their lives because they reduce the time to achieve instant gratification. Clients expect more and more services that were once only available offline to be made available online, and the reason for it is simple – it makes their lives easier. Contractors are not insulated from this client expectation which is why an advantage of using a property maintenance software tool like VendorTrax is straightforward – clients expect it – and since clients expect it that means the competition will eventually use it. Beat the competition to it. 

Manual Processes

At the core of every business is value, defined as a product or service that a customer will pay to receive. Then there are a series of processes layered on top with the sole purpose of transferring value to the customer in exchange for payment. There are sales and marketing processes, field operations processes, and accounting processes to name a few. 

Property maintenance software removes manual processes, enhances standardization and quality across the workforce, and reduces the time to train and equip new employees resulting in accelerated business growth. With VendorTrax, contractors can more rapidly train and equip new employees on internal company processes since the majority of job routing and communication is automated, hence allowing the company to gain and serve new clients at an accelerated rate. 

First, let’s look at the example below showing a typical offline contractor’s manual processes from initial client meeting to final invoicing and then let’s review how a property maintenance software tool like VendorTrax can save time and money for an online contractor by automating the processes.

1. Contractor writes a punch list on a yellow notepad during client job walk
2. Contractor types the punch list into a proposal on the computer back in the office
3. Contractor emails the proposal to the client or a physical copy is delivered by mail or by hand
4. Client prints, signs, scans, and emails the approved proposal back to the contractor or a physical copy is delivered by mail or by hand
5. Contractor types the work order 
6. Contractor provides the work order to the employee to perform the job
7. Employee performs the job
8. Contractor is not proactively notified of job status or completion so learns the status by either asking the employee, or visiting the job site, or by the customer asking for an update which makes the Contractor have to drop everything and get a status in order to provide good client service
9. Contractor types an invoice by adding the punch list items and costs from the proposal
10. Contractor emails or mails the invoice to the client

After reading through the example it should be clear that there are a number of steps that are ripe for automation so both the contractor and client can focus more on progress, and less on process. Next, we’ll explore how a property maintenance software tool can save time and money for an online contractor.

Save Time

It should be apparent that a number of manual, data-entry processes are replicating the same information in different places. The punch list, proposal, work order, and invoice (steps 1, 2, 5, and 9) are using the same data in different places. There is no need for someone to have to replicate something four times…what a waste of time! By using a property maintenance software tool like VendorTrax, a contractor enters the punch list information once (step 1) and that data automatically flows into the other steps. This is a 4x time savings in data replication per job. The time saved across all employees adds up quickly over a year. 

Time is wasted by manually moving documents between parties via email or physically by hand, and by communicating via multiple channels (email, text, and phone). Our property maintenance software tool gives the contractor the power to align the employees and clients on every job by centralizing communication through VendorTrax. This eliminates all of those back and forth emails, texts, and phone calls that get lost in the shuffle. With VendorTrax, contractors can eliminate the need:

• To email attachments back and forth
• To make clients print, sign, and scan proposals
• For clients to ask for job details like schedule, progress, cost, and change requests
• To ask employees when the job is finished

Save Money

If contractors don’t centrally track their jobs then how can job costs be tracked to ensure nothing falls through the cracks? Contractors are busy with a lot of moving pieces to track such as proposals and invoices with clients, and work orders and material purchases with employees. VendorTrax is the property maintenance software tool that provides visibility and accountability of job costs because all work is centrally tracked in an information system versus stacks and stacks of paper on a desk, or job site, or even worse in an employee’s vehicle. Contractors must know where their money is if they want to be in control of their future.

An added benefit of having a property maintenance software tool that centralizes information is that it can increase the speed of cash flow by reducing the friction time between the various process steps, especially the handoffs from one party (or system) to another. The reduction in process time leads to a faster cycle time in getting paid. In the example above, 9 of 10 steps (except for Step 7 “Employee performs the job”) can be digitized leading to significant cost savings over the course of a year by shaving off a few hours from the handoff time on each job. Cash is king.

For contractors who are ready to make their cash flow cycle even faster, they should use a property maintenance software tool that is integrated with a financial accounting software. VendorTrax offers an integration with QuickBooks. This allows a contractor to digitally manage the entire job lifecycle – from complaint to completion – and offers the highest return on investment in transforming their business from offline to online. 

Conclusion

Forward-thinking leaders who adopt and integrate a property maintenance software tool like VendorTrax in their business will maintain a competitive advantage over those who don’t, and that competitive advantage will only continue to increase over time leading to greater market share and profitability. 

There’s an old Chinese proverb that says “The best time to plant a tree was 20 years ago. The second best time is today.” Time is our most precious commodity so don’t squander it by replicating data entry or communicating via multiple channels or losing track of job proposals, costs, and invoices. Don’t wait. Time is money. Get VendorTrax today.

go home and be happy,

Brian (Co-Founder)