Querying Management Fees for Property You Don't Own

Mark Hamill

Has anyone done this?
I viewed a nice apartment that I am seriously considering bidding on but it's extremely high management fee is putting me off (nearly 3k for <150k apartment). The estate didn't have much explanation for it, she just gave me the details of the management agent to ask them. Are they likely to entertain me asking for details? Would I even have any bargaining chips if I tried to get them to lower it?

athtrasna

You can request the information from the vendor but have no entitlement to interact with the management company. Fees are a percentage of the development budget, you can't just ask them to reduce the fees

Peregrinus

The management fees are calculated on the same basis for all the apartments; they can't do a special deal for one apartment.

As athtrasna says, you don't have any right to information from the management company, but the vendor does, so you can ask the vendor to get accounts, information, etc, and see what you are getting in return for the management fees, and why the management fees are so high.

You should not assume that if you proceed with the purchase you will be able to get the management fees reduced.

dubrov

I wouldn't buy an apartment with the hopes of reducing the management fee.

The managing agent is either A providing a lot of services for 3k (e.g. security, huge garden maintenance) or B they are milking it.

If it is B you could get on the board of directors and try and change company. This isn't easy though.

In both cases i would walk away

athtrasna

dubrov wrote: »

I wouldn't but an apartment with the hopes of reducing the management fee.

The managing agent is either A providing a lot of services for 3k (e.g. security, huge garden maintenance) or B they are milking it.

If it is B you could get on the board of directors and try and change company. This isn't easy though.

In both cases i would walk away

Or C there is or has been a large cost expense such as block painting and fees are currently high to pay for that due to insufficient sinking funds and may reduce after a year or two.

Peregrinus

athtrasna wrote: »

Or C there is or has been a large cost expense such as block painting and fees are currently high to pay for that due to insufficient sinking funds and may reduce after a year or two.

Although that in itself would point to poor financial management which might concern a potential purchaser. If they have to jack up the fees that much to pay for a coat of paint, what do you think is going to happen when the lifts have to be replaced, or the block needs reroofing?

athtrasna

Peregrinus wrote: »

Although that would point to poor financial management. If they have to jack up the fees that much to pay for a coat of paint, what do you think is going to happen when the lifts have to be replaced, or the block needs reroofing?

Absolutely, but if happens. Our painting cost almost 30k but we had the money, I know other developments that had to bump fees to do it due to problems with non paying units.

thegills

Or D. Half the apartment owners aren't paying so the fees are going up. Make sure to check there is no liability on the apartment you are looking at. €3k per annum is too high so I'd look elsewhere.

CIARAN_BOYLE

Mark Hamill wrote: »

Has anyone done this?
I viewed a nice apartment that I am seriously considering bidding on but it's extremely high management fee is putting me off (nearly 3k for <150k apartment). The estate didn't have much explanation for it, she just gave me the details of the management agent to ask them. Are they likely to entertain me asking for details? Would I even have any bargaining chips if I tried to get them to lower it?

Well you can get the 'management company' company not agent accounts from the cro. You will find out if there is debtors (from people not paying) or if there are incredible expenses or if there is an adequate sinking fund.

It's much better to buy an apartment if a 10 apartment building with a 300k sinking fund than to buy an apartment in 10 apartment building with a 3k sinking fund.

Mark Hamill

Sorry, I'm getting a little confused. Who is the vendor that people are saying I should contact? I have the details of the management company, the group who puts the various maintenance/security/etc requirements to contract and offers them as a package to the apartment. I don't have any details of the management company, the legal entity who votes on accepting the that package.

Paulw

The vendor is the person you are buying from.
The estate agent is working for the vendor.
The management agent provides the day to day running service of the management company. They get the quotes for all services and provide them to the management company for approval/rejection.
The management company is made up of all unit owners, and votes on decisions at the company AGM, which all unit owners are invited to.

Mark Hamill

I have received the breakdown from the owner. Without posting it here, is there anywhere online I could compare it to to see how the individual costs stack up?

Also, it has a charge for "Reserve Fund", which is presume is the sinking fund, but then it has a separate charge for "Contingency", are these not the same thing?

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dubrov

It is hard to compare two developments exactly.

Fees are generally based on number of bedrooms and a good guide is the following
2 bed fee = 1.25 x 1 bed fee
3 bed fee = 1.5 x 1 bed fee

Even if it is a 3 bed and has a lift, internal areas and a garden, 3k seems very high.

Mark Hamill

There are just over 50 apartments aqnd there are, I think, 3 lifts. The only internal areas are the hallways from what I saw. It has a large wooden deck the length of the complex on one side, but no garden. The charges are proportionate to apartment size and you get a 20% discount if you pay in advance.

The single biggest charge was "Cleaning/Janitor". It was enough to employ a janito full time.

April 73

3 lifts for 50 apartments seems a lot. A large part of the fee probably goes to that.
If 50 apartments are paying €3k each - that's €150k - how is that broken down in the accounts?

dubrov

Yowsa. I assume you mean 20k+. That is scandalous for a complex of only 50 apartments assuming it doesn't cover some sort of specific repairs.
I would've though it would be less than 5k.
The management agent may be providing the cleaning/caretaking or have a very cosy setup with the providers.

The high fees are a sign that the owners don't really care enough to watch the managing agent spending.
The 20% discount is also a sign that there may be issues in relation to payment from members.

You could become a director and try to force a change in management agent but given all the warning signs, the easy thing to do is walk away.

CIARAN_BOYLE

What's the sinking fund like. Is it increasing significantly?

EmoCourt

Have you done the numbers on this place? If you ever had to rent out the apartment you'll pay half of the income in tax. Management fees are going to cost 250 per month. You may not be left with a whole lot of income after tax and management fees.

Lantus

Comparing fees is not really feasible as the scale of each development and it's specific requirements differ.

The two phrases could refer to works within that accounting year and long term future works as yet unknown.

Agents and directors can use a range of phrases depending on their accounting and business experience.

If you get the last few years of accounts from cro you can look at the trends of fee income and cash reserves. Two good indicators of omc health.

Mark Hamill

April 73 wrote: »

3 lifts for 50 apartments seems a lot. A large part of the fee probably goes to that.
If 50 apartments are paying €3k each - that's €150k - how is that broken down in the accounts?

The complex is split into two neighbouring buildings with a bridge in-between them, so I think it's one lift in one and two lifts in the other larger building.
The main charges are:
Cleaning/Janitor (enough to employ 1x janitor)
Insurance ~300/apt/yr
Light/Heat ~200/apt/yr
Various Admin costs ~300/apt/yr (most on agents fees)
Bins ~ 150/apt/yr
Gen maintenance ~ 120/apt/yr
Besides the Reserve Fund and Contingency, the rest is smaller various charges for things like the Lift, Fire Alarm, vermin control etc.
Bigger apartments pay proportionately more of the costs, and there is a 20% discount for payment in advance.

dubrov wrote: »

Yowsa. I assume you mean 20k+. That is scandalous for a complex of only 50 apartments assuming it doesn't cover some sort of specific repairs.
I would've though it would be less than 5k.
The management agent may be providing the cleaning/caretaking or have a very cosy setup with the providers.

The high fees are a sign that the owners don't really care enough to watch the managing agent spending.
The 20% discount is also a sign that there may be issues in relation to payment from members.

You could become a director and try to force a change in management agent but given all the warning signs, the easy thing to do is walk away.

The agent did mention a problem with some units not paying and poorly managed funds by the previous agent in the last few years.

CIARAN_BOYLE wrote: »

What's the sinking fund like. Is it increasing significantly?

There is nothing on the breakdown describing the current state of the sinking fund.

EmoCourt wrote: »

Have you done the numbers on this place? If you ever had to rent out the apartment you'll pay half of the income in tax. Management fees are going to cost 250 per month. You may not be left with a whole lot of income after tax and management fees.

I'm a first time buyer not a landlord.

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Paulw

Mark Hamill wrote: »

The agent did mention a problem with some units not paying and poorly managed funds by the previous agent in the last few years.

That can be a problem. All depends on the agents and directors. We had an issue where our previous agent, while good in general, was poor at chasing non-payments. At one stage it got to where only about 60% were in full payment. It started to cause serious cashflow problems.

But, we changed agent. Our current agent has turned things around and now we are 95%+ compliance. We now have a healthy sinking fund, positive cashflow and limited debts.

But, your fees, to me, sound quite high. It is always hard to compare developments and fees, since no two are alike, and things vary. Insurance tends to be a massive chunk of funds, as would lift maintenance, especially if they have frequent issues.

Stephen P

An apartment I used to live in had very high fee's - almost €2k with over 100 apartments in 6 blocks.  There was a history of insurance claims due to various things going wrong, there was also a high rate of non-payment of fee's.  Check and see if there were any big insurance claims in the last few years.

Bass Reeves

You would be surprised how one person can start the ball rolling in regard to managment fees. A lot depends on whether apartments are owner occupied in the main or rented. If they are rented and 1-2 landlords own the bulk of apartments then it can be hard to change. But in general if the majority of owners are not linked to the managment set up.

You mentioned a bridge between buildings this be an extra insurance risk and maintenance. An expensive clening service sparks of a link to the managment company but you have not indicated the cost I preseme it is in the 30-50K range. If it is a good location and apartment are good quality, well build and underpriced for location I think I would gamble it and rock the boat.

Mark Hamill

I had a look at a credit report on Solocheck and, at least as of the end of 2015, they had very poor cash reserves and very large service charge arrears.

It's damn annoying. The apartment is gorgeous, in the area I want and the price is good. I guess the company being such a mess is why it is a bargain.

Bass Reeves

Mark Hamill wrote: »

I had a look at a credit report on Solocheck and, at least as of the end of 2015, they had very poor cash reserves and very large service charge arrears.

It's damn annoying. The apartment is gorgeous, in the area I want and the price is good. I guess the company being such a mess is why it is a bargain.

You could always buy and be in arrears until it is sorted. You have to talk to someone that owns an apartment in it. Larger arrears are only an issue if not collected. They are a headache when those owners go to sell. If you are 3-4 years in arrears that is 10-12K that management will have to be paid at sale of property even if a repossession

Lantus

Bass Reeves wrote:

You could always buy and be in arrears until it is sorted. You have to talk to someone that owns an apartment in it. Larger arrears are only an issue if not collected. They are a headache when those owners go to sell. If you are 3-4 years in arrears that is 10-12K that management will have to be paid at sale of property even if a repossession

A new owner has no arrears. The existing owner must settle all arrears at the point of sale.

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dubrov

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The fees are normally shared pro-rata.
I.e. If you buy half way through a year you pay half the fees

Lantus

dubrov wrote:

The fees are normally shared pro-rata. I.e. If you buy half way through a year you pay half the fees

That's lease dependant. Our omc you only pay a full year. And you don't always have to pay a year up front on purchase. Again it depends.

dubrov

Property tax is technically charged to the owner on November 1st each year.
However the norm is that is it shared pro-rata where a property is sold.

So, it doesn't matter what the lease says as most buyers will insist on a fair apportionment of fees.
If the seller insists, the buyer would just factor it into the price and potentially walk away.

Lantus

dubrov wrote:

Property tax is technically charged to the owner on November 1st each year. However the norm is that is it shared pro-rata where a property is sold.

Aside from bins there is no taxable element in service fees. And actually it does matter what the lease says.

dubrov

Lantus wrote: »

Aside from bins there is no taxable element in service fees. And actually it does matter what the lease says.

I am not sure why you are referring to taxable elements in service fees.

The lease certainly does matter but the clause relating to liability for the management fee on sale of a property generally has no material impact in reality.