Management Pricing - What you need to know to make an informed decision
When evaluating management companies many board members focus solely on the monthly management fee. At first glance, that makes sense. The reality, however, is that the monthly fee does not always represent the true total cost. Most management companies make their "real money" through hidden costs and by selling their clients overpriced add-on services.
As many boards have learned the hard way, partnering with the wrong company can cost your association thousands of extra dollars every year.
Industry Practices to Avoid
There are a few common methods that are used by management companies to make money above and beyond their management fees. You should be empowered with this knowledge so that you can ask tough questions and find the best partner for your association.
Most of the practices reviewed below are based on the strategy of luring boards into a contract using a low monthly management fee in order to overcharge in other areas.
Click any of the sections below to view more details.
Extremely Dangerous. Board members should never allow association funds to be held in a management company bank account. Doing so exposes the association to significant financial risks.
You should be aware of this tactic used by many unscrupulous management companies. We strongly encourage all board members to learn more about this risk here: Protecting your association funds.
Outrageous. Some management companies charge fees if they are able to find service providers that are less expensive than the association’s current suppliers. These fees can be significant, totaling as much as 50% of the realized cost savings for multiple years!
The fee often applies whether or not the Board agrees to switch to the lower-cost provider found by the management company. Boards should never agree to share costs savings with a management company that is already being paid to support their association.
Too Expensive. By providing additional in-house services such as maintenance, cleaning and landscaping to their association clients, management companies have the ability to grossly overcharge their clients.
This creates an environment where the management company has financial incentives that are in direct conflict with the best interests of the association. How much effort are they going to put into finding real, competitive quotes if they rely on in-house services to remain profitable?
The less the Board pays attention, the more they get taken advantage of.
Against the law. Similar to construction services, legal services are also offered by some of the industry's less-reputable management companies. To mask the reality that the attorney is actually "in house", and therefore prohibited from providing legal services to your association, the attorney will often operate under a different company name.
The fact that the attorney exclusively handles matters for the management company's clients, or even resides within the same office space as the management company, does not disguise the unfortunate truth.
Not only is this approach against the law, it leads to rampant over billing.
In these scenarios the management company has a direct financial incentive to "push" expensive legal work to the attorney. The money made on excess legal fees can easily dwarf the monthly management fee charged by the company.
Unethical and Costly. It is not uncommon for management companies to receive kickbacks from vendors that perform services for their clients. While not illegal, these practices are clearly not in the best interest of the association.
Adding 10-25% on top of every maintenance project results in a significant amount of annual waste. This waste can far exceed the management fees being paid to the management company.
A Costly Conflict of Interest
The inherent conflict of interest associated with these practices all but guarantees that the association will be overcharged. These additional costs to the association can far exceed the management company's monthly fee. Be sure to review these topics with any potential management partner so that you can understand the true total cost.
READY TO LEARN HOW PRICING WORKS WITH CONNECTED MANAGEMENT?
Now that you are now aware of some of the "questionable" practices commonly used throughout the management industry that can affect your association's costs, we encourage you to review and compare the pricing structure used by Connected Management.