Extra Manager's fee / Legit ???

Question

I have a 20 and a 19 unit property that is professionally managed off-site.  I pay 7% of collected income and my manager also charges leasing fees, trip fees, and recently another fee that really bothers me.  The new fee is the difference between a wholesale fee, or discounted fee, a vendor charges them for a repair, because of their relationship, and a "market rate" for that same repair from a vendor who doesn't give them a "relationship discount. Basically, they expense to me a manager's fee for the difference between a wholesale repair cost and a retail repair cost. This is hard to measure and I just don't like it.  My manager says this has become common in the market.  Any ideas on 1) Is this a legit fee and? 2) What better compensation system can I do to better align their interests with mine?  Thanks.

Jessica Zolotorofe · Answer

Not common! At least not in my experience. How does it help you for them to get their preferred contractors in if you have to pay extra for it? That makes no sense. I would definitely say no. How can they add a fee recently? Is their contract up for renewal?

Jessica Zolotorofe · Answer

@Timmi Ryerson and @Dan DeAngelo I live in one of the most expensive parts of the US by far with only 1 state coming even close, and 25%, or even 15% is ridiculous. And the oversight and management of the repair work is what they get paid their fee for, plus their time to travel to the site and their expenses in doing so. And remember, this is not a markup on repair oversight, maybe that would sit better with me, although again, that is their job as the manager, part of the reason they get their 7%, you know... to manage the property.

Why should they make money on you using the contractor they have this side deal with, which likely means they aren't shopping around for the best price for YOU, but they are using the company that will give THEM the best price so THEY can profit from the spread. It's a way of getting a kickback without actually getting one so they can avoid what I'm pretty sure is illegal.

Instead of choosing the contractor that may very well do better work because they are getting $150 an hour instead of getting $75 and the management company taking the other $75, you get the manager's go-to guy that allows the manager to make extra money. Think about how sketchy that really is.

And like @Sebastian Taylor said... these hidden or added fees are such bad business practice. If they want to keep the account and you have no contractual obligation to pay this extra fee, I would say absolutely not. I know you worry about your relationship and being fair, but that's a 2 way street and they are trying to rip you off.

Sebastian Taylor · Answer

That is my experience as well. They come, evaluate, propose. Some want a fee for that up front - I do not use them. Some spend my time and want a fee later in the game - I consider it to play games - I do not use them either, but in addition, blame for my spent time.

Timmi Ryerson · Answer

It can be from 8 to 15 %.  For short term rentals (I live in a resort area) it is 25%.

Timmi Ryerson · Answer

In my experience, marking up an invoice for repair is a common practice.  Maintenance and repair management is a time consuming task and has many facets.  The PM has to coordinate the repair appointment with a tenant, be sure the repair was done correctly and pay the vendor for the repair.  PMs are realizing that they need to get paid for their time to perform these services.  I suggest that you confront the PM you use and be sure to check your contract for language that allows this practice. You may be able to negotiate an amicable result.

Sebastian Taylor · Answer

Very fascinating. Where do they get the "market rate"??? I personally don't even deal with people when additional "service fees" are coming up. Contractors try to pull this. Their "estimate" is free, but to provide you with the price, they need to compile a "report" that costs $290. They tell about the report at the end of their "free" estimate visit. As soon as I hear that my blood boils; they've just wasted an hour of my time. I never talk to them again.

1) Isn't it their job to find best contractors with the best price? They are already paid for that.

2) There is no such a thing. Their interests are always contrary to yours. You just have to fire them periodically and get new ones. Or find another management strategy.

Clayton Plank · Answer

I personally think that is crap. Call around and see what other management companies in your area are doing. I manage my own as I found most of the management companies around here were coaching and training our tenants to pay late so they could make more in fees. I do not like this as you are only hurting your tenants and costing them more money just for profit.

Sebastian Taylor · Answer

Absolutely agree - however, tell me that before you schedule an appointment! Do not tell me that it is free, and then pull $295 out of...

Dan DeAngelo · Answer

@Andrew Johnson...  yeah, it seems like they segregate out extra fees as much as they can.  I want to be fair with them and compensate right.  Like anyone, I just don't want to be gouged.  Thanks for your comments.

Extra Manager's fee / Legit ???

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