Fraud or no?

[Shannon Reynolds]

My property in MD is turning over to a new tenant. My PM sent me a quote that gave me a small heart attack. Upon further inspection, I quickly recognized that the times they were allocating for various tasks were grossly overexaggerated. For instance, changing the battery in a garage remote and reprogramming it. That shouldn't take a professional longer than a couple minutes. They had 2 hours! When I confronted them, they defended their quote, stating that they go off the industry standard and a portion of the labor time is for "testing the system after repairs to ensure safety." To which my response was, "so 5 min to complete, 1 hour and 55 min to make sure the new battery doesn't explode in the remote and burn down the entire neighborhood?"

That was just one example of what I would consider to be fraud by grossly misrepresenting the time required to complete even the simplest tasks...like changing a couple light bulbs...30 min! 😂

Can someone shed some light on this matter? Isn't that some form of Consumer Fraud?

If so, I assume I am obligated to mitigate through my contract, but I declined to allow them to do the work anyway. For me, it's the principal of the matter. They admitted to charging the same for other turnovers, so if it is fraud, it seems like grounds for a Class Action lawsuit? If PMs in MD operate like they do in CO, they are required to keep all client records for 4 years. And the Real Estate Commission would have to investigate any written complaint. If they confirm the complaint, they would turn it over to an administrative judge for ruling. Then the Commission would act according to the ruling...but they can't assign punitive damages. So, who does...I've gone this far down the rabbit hole. I want to see the Queen! Lol. 

[James Wise]

Quote from @Don Konipol:

The reason people DON’T get wealthy in real estate is that instead of going with a different service provider when they’re unhappy with a quote and concentrating on earning more money through additional and better investments - they spend the time and energy researching if they can sue, who they can sue, what agency they can report the vendor to, if a class action is possible and the very technical legal aspect of flat fee quote vs hourly quote.  

 lol.....mic drop.

[Bud Gaffney]

It's WRONG, but its not FRAUD. Fire them yesterday and get new management today : )

[Bud Gaffney]

No good PM company will charrge this. 

[Jeremiah Dunakin]

If you were sent a quote and do not agree with it, do not accept it. If your PM is doing this to you, fire them. One of the many reasons I think PM are overrated. They are not looking out for your best interest even though you pay them a monthly fee to take care of this exact matter. They are either part of the scam or are not smart enough to know you getting scammed. Either way they no good. Decline the quote and get another one from a handyman. I bet they would love to come out for 10 minutes and make a 100$

Who are you going to sue? How much would “gain” by doing this? Just get a new bid on the job from a couple people. 

[Frank Chin]

I owned and managed rentals for 40 years, and for a while operated my own IT business. Small jobs like these are hard to operate and charge a client.

Early on, I had to price contractors and handyman on small jobs, and some years back, the minimum charged is $300, or $150 for a half day job, even if the job last 10 minutes. The best example is tenants who don't know how to change a faucet washer, had few of those, and I had to go over to do it. It's a ten-minute job if you have the tools and parts. I had an IT job that pays well, had no time to run over after work to change a washer, and had my plumber charge me a special rate of $85 to do it on the way to his 1st job of the day. When my wife spoke to her mom about it, her mom having also invested a small sum in the property, and she was extremely upset that we paid such a ridiculous amount for a 10-minute job.

So, when we got the next faucet washer request, my wife thought that she'll try to go over and do it herself. The property was 20 to 30 minutes away. She went there, took the washer out of the faucet, and then had to go to the nearest hardware store to get one. In NYC, these local hardware stores had no parking lots, so it took 20 minutes to find parking, go into the store, another 20 minutes, and got help to get the right washer. Got back to the tenant's apartment and turned out to be the wrong size. By that point, she spent an hour and a half already, so she put the old washer back in, told the tenant to wait another day that we'll have our plumber come and take care of it.

The plumber I had used for many years, and he's done small jobs for me finally did it. My wife decided not to discuss small repairs at rental properties again with my MIL anymore as she's a penny pincher. Appears she got as upset as you. As a matter of fact, I heard two customers having a heated discussion at a local place where I had lunch over small jobs they have contractors do and they were charged a minimum of $150. 

[Peter W.]

As others have said, they gave a fixed price quote based on something which seems ridiculous to you--not fraud.  Maybe it is ridiculous, maybe it isn't--but likely they have historical data which backs up the quote.  You have three options, accept the bid as is, negotiate on price and find someone else to give you a quote.  I find as someone who isn't a good negotiator asking is this the best you can do to be a reasonable negotiating tactic. 

A huge part of being successful and scaling as a real estate investor is finding reliable, available, competent, hardworking help (handymen, electricians, HVAC folks, property managers).  But everyone wants folks like that which means if you don't pay them well someone else will.   People who do good work want to be paid like they good work.  Shoddy work ends up being way more expensive than good work.

Folks who don't deal with the budget at their place of work rarely understand is that what you bill the worker, is 2-3 times what you make.  The cost of an employee (depending on your state and business structure) can really add up once you account for all the overhead which goes into their work (labor, equipment, insurance, taxes, business administration). 

On top of that you have to account for the risk of things going sideways. For instance in your example of the remote repair, what happens if they go to replace the battery and find out the battery started to corrode and they need to clean the leads, or the issue was actually that the remote got wet and needs to be replaced (it probably took them some time to debug that).  Point being the quote has to cover things going wrong as well.  Moreover the quote becomes expensive if a lot of work needs to go into it, so they need industry standards based on published data or internal data.

With that said, the easiest way to increase your margins is to figure out how to charge more.  And overestimating cost to completion is a good way to do that.

[Xochitl Cadena]

I feel your pain, I had a similar experience so we parted ways. Hard to keep a PM if you are in a contract with them. In such contracts it is specified what they charge per hour or a percentage of the rental income. But as a newbee (and they know it!) they will make their money in any corner they can. In my opinion is unethical, and if this was a big enough company that is doing this to thousands of consumers then your class action suggestion might play a role (note I am not an attorney), but since we are talking peanuts compared to the amount in class action law suits you are out of luck. The industry doesn’t regulate it either (sadly). So a ratings system based on service, cost and reputation is much needed for PMs. 

I recommend you to build relationships with electricians, plumbers, gardeners, etc. and establish a system where the tenants report issues and you manage the maintenance required. Establish outdoor cámaras to review exterior activity, and request pre and post pics of the job and pay your contractors promptly. Doing so establishes trust and on your end see how good is each contractor. 

Basically establish more controls. I am small enough that I can still do the managing of the properties like this and assume that as I grow I can get a property management company that deals with bigger player. I imagine that as a result they will pay more attention about my needs and hence care about not loosing big accounts.