Bargain basement PMCs

“The common law of business balance prohibits paying a little and getting a lot—it can't be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.

—John Ruskin

There are some newly elected boards that have only one thing on their mind—cut expenses so they can either freeze the fees or roll them back.

Since management is one of the large-ticket items, that becomes one of the first places they look to save money. So the hunt is on for a bargain basement property management company.

They know what you want
When a board is looking for "Chinese price" the bidders know that they have to bid low to get the contract, so they either decline to bid or they go in with what they think will be the lowest bid.

How do they make money?
How does a management company make money if it submits an extremely low bid? There are four ways:
Provide inferior service. After a while, the residents expectations drop.
Make extra money by accepting finder fees, consulting fees, kick backs and/or commissions from all contracts they submit to the board.
(Channel Property Management was a master at this.)
Awarded contracts at high prices to sister companies.
Charge extra fees, some highly inflated, for a variety of services that are not included in the contract.

Discount management companies may cut corners, provide poor service and hire inexperienced staff (in order to keep salaries low) and they will receive undisclosed commissions from the contractors they bring to the condo. They keep the $100 fee when they provide status certificates; money that belongs to the condo corporation and charge for "extra" services. There may be finder fees and consulting fees.

All work not covered by the contract will be billed to the condo. That is why it is so important for the board members to fully understand what the contract contains and what "extras" they will have to pay for.

The PMC may ask for a percentage of all cost-savings they provide for the condo. Then the condo may be locked into long-term contracts with utility providers and pay for expensive energy saving projects. Existing contractors may be replaced with others who promise lower costs but gives "commissions" to the management company.

The low-cost management companies may not be properly insured. That is why the condo corporation's lawyer needs to review the contract before the board signs it.

Will the condo actually save the amounts that are promised? Maybe, but most likely not. There are few boards, or owners, who will bother to keep detailed track of the financial statements over the years to find out.

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