This question is frequently asked by landlords who are shopping for the services of professional property managers and are previously used to doing their own repairs and/or using their own vendors. These landlords tend to be either not familiar with, or even suspicious of how property managers (PM’s) work.
The answer to this question is quite simple;
Some do, and some don’t!
Why do they mark-up invoices?
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% or 20% mark up across the board, no matter what the invoice relates to.
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 mark up.
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 mar up.
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 mark ups 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 many larger companies now do. They therefore make their “mark- up “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.