Maintenance markups and coordination fees in management agreements

Coordinating a repair takes real time: the tenant’s call, the vendor search, the follow-ups, the owner approval and the final check. Some managers cover that time inside the monthly management fee. Others charge for it on each job. Either can be fair. What owners object to is finding a charge they didn’t know about.

This post walks through the three common ways to charge for maintenance coordination, the other charges that end up on the same statement, how to price your fee from what coordination costs you, and how to write it into a management agreement so the owner reads it before the first invoice, not after.

Three ways to charge for coordination

Some agreements combine them: coordination included for routine jobs, a flat fee above a dollar amount, and a separate fee for larger projects. That is fine as long as each piece is written down and shows on the statement.

Other charges that land on the same statement

Owners don’t separate your fee from everything else on the maintenance line. When they ask what maintenance cost them, they mean all of it. These charges often sit next to the coordination fee:

The pattern that causes trouble is stacking: a vendor’s after-hours rate or trip charge, plus your emergency fee, plus a markup on the total. Each may be fair on its own. Together, on a 2:00 AM ET call, they can surprise an owner who agreed to each one in a different paragraph. Put them in one section, and say how they combine.

How the same repair looks under each model

Here is one plumbing repair with a $400 vendor invoice, run through each model. The 10% and $25 figures are only there to show the arithmetic. Use your own.

The third row is the one to avoid. The owner pays the same as in the second row, but can’t see it. That is the version that reads as hidden profit when an owner, an auditor or a regulator compares the vendor’s invoice with the statement.

Price the fee from what coordination costs you

A fee picked by looking at what other managers charge can still lose money on every job. Start from your own cost:

1. Count the work orders you closed last month.
2. Estimate the hours spent coordinating them: tenant calls and texts, finding a vendor, follow-ups, approvals, booking and the final check.
3. Multiply those hours by the loaded hourly cost of whoever does them, including benefits and software. The post on what a maintenance coordinator costs lists what goes into that number.
4. Divide by the number of work orders. That is your coordination cost per job.
5. Add the hours you spend after hours, which are easy to forget because nobody logs them.

Compare that cost per job with the fee you charge, or with the share of the management fee that is meant to cover maintenance. The maintenance cost calculator runs the same math with your own numbers. If coordination costs more than it brings in, the choices are a higher fee, fewer hours per job or someone else doing the hours. A maintenance coordinator is one way to move the hours, and the comparison with hiring a coordinator sets that option next to the others.

Write it so nobody is surprised

Whichever model you choose, the agreement should answer the same questions in plain words:

• Which model you use, with the exact percentage or fee
• Which jobs it applies to, including emergencies and make-readies
• Whether the owner can see the vendor’s original invoice
• Whether you or anyone related to you receives a rebate, referral fee or other benefit from a vendor
• How the charge shows on the owner statement, as its own line or inside the vendor cost
• How the fee works with the approval limit: is the limit before or after the markup?

Why disclosure matters more than the number

Owners compare managers on the total cost of owning a property, not only the management fee. A low monthly fee with an undisclosed markup reads as a bait and switch once the owner notices. A written fee, shown on every statement, reads as a cost of doing business.

Many property managers are licensed real estate brokers or work under one, and members of the National Association of REALTORS® follow its Code of Ethics. Article 6 says members shall not accept any commission, rebate or profit on expenditures made for a client without the client’s knowledge and consent. Your state’s real estate commission may have its own rules on trust accounts, compensation and disclosure, so check them and have a lawyer review the clause.

California spells it out for its licensees: the Business and Professions Code lets the real estate commissioner discipline a licensee for claiming or taking any secret or undisclosed amount of compensation, commission or profit. California real estate lawyers list vendor rebates and markups on vendor costs among the examples that come up in Department of Real Estate audits.

Approval limits and the markup

Decide whether the owner’s approval limit applies to the vendor’s price or to the price after your fee. If the limit is $500 and the markup brings a $470 invoice to $517, someone has to decide whether that job needed the owner’s yes. Write the answer down once, in the agreement, instead of deciding it job by job.

The same goes for the limit you give vendors. A spend limit on each job offer should leave room for your fee under the owner’s limit, so a job that comes in at the vendor’s limit doesn’t cross the owner’s. The post on setting owner approval limits covers how to pick both numbers.

Questions owners ask, and answers that hold up

“Can I see the vendor’s invoice?”

Say yes, and attach it to the work order by default. An owner who can always see the original rarely asks for it.

“Why is there a fee on an emergency?”

Because emergencies take the most coordination: the night call, the vendor search at 2:00 AM ET, the follow-up the next morning. If you charge for them, say so in the agreement and point to the clause. If you don’t, say that too.

“Do you get anything from your vendors?”

The answer should be in the agreement before the owner asks. If you receive a rebate, referral fee or volume discount, disclose it in writing and get the owner’s consent. If you don’t, write that you don’t.

“Why did this job need a vendor at all?”

Show the tenant’s report, the photos and the vendor’s note. A work order with that record answers the question in one message.

When the fee stops making sense

A per-job fee rewards more jobs. Owners know that, and some will ask whether a repair was needed. Photos, the vendor’s note and the tenant’s confirmation on every work order answer the question before it becomes an argument. The owner approval limits template has wording for the approval side of the same agreement.

Where Now Ours fits

You set the spend limit for each property. On Cautious, the default, Ours asks you before it spends money or contacts a property owner. Owner approval links are included. How you bill the owner for coordination stays in your agreement and your accounting.