Over the years, I have occasionally come across property management companies that, unbeknownst to the property owner, add an extra charge to the cost of services and projects in order to put a little more money in their pockets. They may get a contractor to add a percentage on top of their bid amount that will be paid to the management company in order for the contractor to get the work. I have even seen a percentage added to a utility invoice as payment for paying the bills and keeping the utility on, which is against the law in many areas. This is known as a kickback and, to many, is unethical and improper. I agree.
I have come across two properties in the last month that have found out their management companies were getting kickbacks. Two in one month is a lot to me.
If you have hired a property management company, you need to make sure the bids and invoices received are not padded with kickbacks. The following are some of the things you can do if you find it necessary to research:
- Talk to providers and contractors and ask them what the actual cost to you is and whether any of the charges billed are being paid to the management company,
- Review utility invoices and make sure what has been paid is what has actually been charged by the utility company,
- Ask that all services and contractual services be bid out again – and include providers you have chosen who you know will not participate in the kickback practice in order to compare bids,
- Require detailed invoices that itemize all parts used and why they were used and the amount of hours charged for labor, and
- Pay attention to the red flag waving when the management company changes a provider or contractor who has done a good job without notice to you, particularly if the cost increases.
It seems more than a coincidence to me that many of the management companies in the kickback business charge a lower management fee than their competitors. Hiring the least expensive company is not always in your best interest. They are going to make their money one way or another.
Make sure your management company and its managers are properly licensed. Hiring managers who have been certified in their industry is beneficial as well.
It angers me that a few management companies practice in kickbacks and tarnish the reputation of thousands and thousands of responsible, ethical companies and real estate managers. If you find your management company is taking kickbacks, please do not assume it is a common practice for all.