Do Property Managers Mark-up Invoices?
This question is frequently asked by landlords who are shopping for the services of professional property managers and are used to doing their own repairs, or using their own vendors. These owners of rental properties tend to be either not familiar with, or even suspicious of how property managers work.
The answer to this question is quite simple;
- Most all do.
Just as most businesses do, although some say they do not mark-up vendors invoices, but work around the issue in various ways!
Why do they mark-up invoices?
Property Management works on a wholesale/retail basis, like any other business. Your PM Fee is averaging 10% but is not the only fee a company can have. See our Fee Chart which lists most common fees: https://www.bci-properties.com/fee-chart/
The best and easiest way to find out what policy a professional property manager (PM) has for this, is to simply ask the question outright and early on in discussion, as some management companies do mark-up vendor invoices and some do not.
Typically, if a PM company does mark up their invoices it will be a fixed 10% to 30% mark up across the board, depending on the complexity of work being done.
What determines if the markup is 10%-20%-30%?
This is entirely predicated on the amount of actual work in terms of time and labor is involved to supervise a vendor, or to spend time chasing down a needed part. Plus we are the owners eyes onsite. Here is an actual real time example where we received no fee or markup; a vendor was hired to relevel a floor in an owners rental home. I was not satisfied with the $2,800 job and confronted the vendor. He said he had done his best and submitted his invoice for payment.
After I double checked the house (I am a licensed contractor), I found that the entire North side of the home was sinking and needed a total relevel, not just pier post supports. I refused to pay the invoice, telling the vendor that he should not have taken on a job he is not qualified to do and there is no way I would make my owner pay. He agreed. –
You should be able to see that a lot of time was invested, but there was no markup or fee charged.
Where a markup is high –
A tenant required our presence during an extensieve plumbing repair, due to minor children alone at home, for their comfort and safety. We agreed and assigned one of our maintenance personnel to handle it. The vendor charged our company $3,200 wholesale, retail normal cost to the owner was $3,520. We thus barely covered our base time, with no profit yet there was a 30% markup.
The way it works is, they input into their back office system the invoice requiring payment to the vendor and the software will automatically add that company’s required percentage of markup.
So for example, an invoice of $100 charged by a plumbing vendor will actually show on the owners account as $110 being paid out of owner funds, with the $10 difference being retained by the PM Company.
Why a PM might do this?
Landlords need to understand why property managers do this form of invoice markup.
In an ever increasingly competitive market, property managers cannot cover everyday costs with leasing and management fees alone. Thus PM companies need to find other ways in which to discover income to help cover their business costs and overheads and to stay in business.
Much time is spent on a day to day basis liaising with vendors and often it involves follow up calls, quality control, taking photos, warranty work or even attending properties and waiting while work is done. This does not generate income for a PM and thus they actually lose not only their time, but money doing so. Thus more and more PM’s are turning to vendor invoice markups as a means to supplement their decreasing traditional fee income streams. Nowadays the landlord or property owner should expect this to be the usual procedure for the modern day property manager.
This however, only tends to apply if the property management firm does not have their own in house repair division, which we do, and which many larger companies now do. They therefore make their “markup” or “repair profit” directly thru that in-house division. So a further mark-up is not needed on top of the in house repair invoices being generated. More details on request.