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Is Your Managing Company Feeing You To Death?

How many ways can it make you pay? More than you think.  In case you don’t even know who your building’s managing company is look at the name on that brass plaque affixed to the façade announcing who’s in command.  They’re entitled to get paid. Managing a building and the cast of eccentric characters who live there is a tough job, and the better the company, the more it’s worth.

Say the “management fee” is $75,000. Logic tells you that’s how much the company will receive for managing your building.  Only odds are you’d be wrong.

Increasingly that number is only the beginning of the calculus.  Instead of bundling together all their services into one lump sum, management companies are slicing and dicing them into separate pieces and reconfiguring them like some exotic derivative, so that the total amount can be much greater than the sum of the parts, a reality your building may not realize till after the fact.

Here’s how it works.

1.  In addition, to the “management fee,” the company may charge extra for taking minutes — anywhere from $200 -300 a clip, which usually means some junior assistant comes to board meetings and churns out drafts that then have to be redone by the Secretary, who should be taking them in the first place. It’s pretty much a waste of money for the building, but a source of revenue for the company.

2.  There can be fees just for sending out notices that are required by law, like those window guard notices you ignore every year. Usually they’re structured as individual add-ons. At $5 0r $10 a pop they may not seem any more  expensive than a side order of fries. Except you only order one burger, but there  are likely hundreds of residents in the building. When you multiply that $5 or 10 by the number of notices sent out per year and then by the number of people to whom they’re being sent, you’re talking real money – this add on alone could  amount to $10,000 or more in a building of 200-250 apartments — pretty expensive fries.

3.  Next are fees you are charged by the managing company if you want to do something — sell your apartment or alter it or refinance or just because you’ve lost your stock certificate and need a new one.  It’s not like you’ve ever agreed to any of them, your board commits you to pay as part of the arrangement with the company. That’s pretty standard, though the amounts you’ll pay for each transaction can vary by a lot. However much they are, they flow right to the company’s bottom line.

Say there’s one sale per month in your building (in flusher times not uncommon in buildings with hundreds of units). The company could easily make about $1,000 per sale (including application fees paid by the buyer and transfer fees forked over by the seller) or $12,000 on an annual basis.  And that doesn’t include fees for refis or alterations or name changes, which could bring the total fees owners pay direct to the company in excess of $25,000, and more for a larger building. We’re only on extra number 3, an already by my calculation the company has the potential to make 50% more the the “management fee.”

4.  Your managing agent may get a slice of the  commission pie paid to a broker as part of the building’s insurance premium. Is it legal? Is it ethical?  That’s a subject for another day. For now, just add another few thousand to the tally.

5. It may get substantial referral or other fees from the mortgage broker if your building refinances its underlying debt.

6. Mass mailings are another way it may use to make more money, charging extra just for sending out stuff to everyone in the building it supposedly manages. Postage charges almost make sense, most anything else does not. Anyway, now that lots of notices can be sent by email, why not cut costs and save trees?

7.  Then there are fees for doing special things, like working with outside contractors or dealing with emergency repairs, services that used to be included in managing and now may be excluded The problem is half the time it’s impossible to tell what’s in and what’s out so unless it’s all specifically spelled out in advance there can be trouble down the line.

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