A Commentary On “Bargain” Management Fees
Tony Gioventu, one of the foremost experts in Strata issues in British Columbia, has written an article which we think is critical to understanding developments over the past 5-10 years in our industry. You can find his article, entitled “‘Bargain’ Management Fees Need a Closer Look” here.
To understand the broader context of why this topic is so important, we recommend referring to previous articles we’ve written on the critical shortage of labour in the Strata Management industry, as well as the increasing cost of doing business for Strata Corporations in light of minimum wage hikes.
Increasingly, competition in our industry is actually exerting a downward pressure on management fees, as described by Mr. Gioventu. This is occurring even in the face of a critical shortage of licensed Property Managers and an ever-increasing demand for experienced, reliable strata management services that far, far outstrips supply. While on the surface these less expensive management fees may seem to be a wonderful thing for the consumer, it is unfortunately a painful example of the truism ‘you get what you pay for’ and the underlying actions are proving to be extremely detrimental to our industry.
Some Property Management companies are promising more and more automation, greater reliance on technology (and less reliance on skilled/qualified Property Managers) and a “one stop” shopping approach where you can get management, concierge, janitorial, banking, insurance services and everything else taken care of all under the umbrella of one company. The promise of the latter especially relies on management companies taking a cut of the fees earned in the ancillary parts of their business. To be clear, what we know to be increasingly common is for Strata Corporations to hire a management company at a “bargain” basement price for the monthly management fee, and the management company making up the difference it takes to actually operate their business and turn a profit by earning commissions and extra charges through other parts of their parent company’s business, or through provisions in their management agreement that allow for significant charges above and beyond the monthly fee. This includes banking and insurance programs, undisclosed commissions on restoration/painting/plumbing/etc. projects, and partial or whole ownership in some of the vendors/suppliers recommended to the client.
At Stratawest, we know what it costs us to put forward a top-notch management program for our clients and we set our prices accordingly. We have always and will always believe that talent wins, and we aim to hire and retain the best staff available in the industry. We are very proud of our excellent record of retention of our staff and the solid reputation we have developed in over 25 years of business. We are seen as a destination for skilled staff to go to, which is in no small part due to the fact that we do not overload our Property Managers, Bookkeepers and Administrators with unsustainable portfolio sizes and workloads. We do this by charging a fair monthly fee for our services and comparatively we charge for very little else. When you review our management agreement you will see that we charge a monthly fee for our services, costs for disbursements, a few “extras” such as overtime meetings and legal proceedings and nothing else substantive. We are extremely proud of this- basically, you know what you are going to pay every single month to us. Increasingly, we’re seeing that this isn’t the case in the industry. Strata Corporations often never know how much they are paying to the management company because the contracts are opaque, disclosure is questionable (or was made years ago and no one is currently aware of what is taking place), and the reporting is non-existent. These management companies are keenly interested in many line items in the operating budgets of their strata corporation clients, and some view the actual strata management contract and related fees as the loss-leader- the way to get in the door and earn fees/contracts/commissions through their “ancillary” businesses.
We are never going to be the least expensive option when looking at management fees and this is because we charge a fair rate for our services so that we can pay our staff well and ensure the best and the brightest are working for us (and yes, earning a profit as well). We also have no interest in keeping our business practices a secret from our clients because there is nothing to keep secret and, frankly, it’s just not how we do business. And while we get excellent rates/banking arrangements for our clients along with better than market rate insurance premiums due to our reputation and the size of our portfolio, all of these benefits and savings are passed along to our clients. We will not leverage our relationships with banking and insurance institutions in order to add money to our bottom line and how would you ever trust us to make unbiased recommendations if we did?
We thank Tony Gioventu for his article and dragging this concern out into the light, and also raise this as a caution when comparing management agreements. We highly recommend scrutinizing the management agreements and disclosures very carefully when selecting new management and, to our current clients, when considering whether or not an increase in the management fee that we propose to you is reasonable. It is likely that you will always be able to find management less expensive than our program on the surface, but once you dive deeper into the various arrangements in place you’ll find that the margins in our industry are notoriously tight and that if someone is charging you a pittance for management fees each month then you are likely getting what you pay for and they are earning far more from your relationship than you know.