For most boards, the fees charged by their management firms are just a fact of doing business. Aside from signing the initial contract, most board members probably do not give much thought to how those fees were initially determined, beyond the usual comparison-shopping that goes on when choosing a firm. Perhaps a bit more scrutiny is applied to determining the annual increases within the contract, but still, the fee formula may seem closer to a financial alchemy rather than an exact science transparent to all.
The truth is, although most management firms take the same factors into consideration when determining a fee structure, each company is different. Each offers its own brand of experience and expertise, its own way of doing business and serving its clients. Pinning down the source and trajectory of management fees is a far cry from predicting, say, the price of oil.
A large part of that unpredictability stems from the fact that not only is every management firm different, so is each building. A ten-unit co-op on the Upper East Side stands as a wholly different animal from a 200-unit high-rise in Battery Park. So with all these variables in play, how does a management company determine how much it will charge, and most important of all, how can a building know if they’re getting the right kind of deal for their needs?
Starting With the Basics
The first thing to remember about the determination of fees is that nearly every management firm offers the same basic set of services regardless of building size. Variables include the option of having a manager on-site either full-time or for a set amount of hours per week; backroom services such as bookkeeping, bill paying and other financial tasks; and operations management such as staff management and oversight of repairs and maintenance. That said, differences between building communities are weighed differently by different management companies. Obviously, if a building requires a 40-hour-a-week, on-site manager, then the fee is going to be higher than a building that only needs for the manager to show up once or twice a week.
“When we have the opportunity to pitch an account,” says Dan Wollman of Gumley-Haft Real Estate, “the first thing we do is look at the size of the building, number of units, and the location before we even propose a price. We do a walk-through to determine approximately how many hours we’ll have to spend on the property on a weekly basis, and then try to figure out who would be the best manager to be assigned to that project. We look at the amount of work the building requires, the amount of hours we’ll have to spend, and we also have to look at what it’s going to cost us to maintain that account.”