Mainstay

Managing Agents must avoid a ‘race to the bottom’

Posted by Stuart Prior

By David Clark of Mainstay Group

I have always believed that you get what you pay for in life. This applies to property management and the management of your apartment development as much as it does anywhere else. In property management I have witnessed increasing pressure on price, both as a consequence of increased consumer involvement and of a growing number of new businesses who are prepared to buy opportunities. However, the practical outcomes of such activity need to be considered very carefully when dealing with customer’s homes and their well-being within those homes.

Many would argue that property management in the residential sector is long overdue a regulatory framework within which to operate and there are many good arguments to support this. But operating in this sector is not without regulation and I can think of few sectors that are required to act in accordance with so much legislation and regulation already – particularly relating to fiduciary duties and to health and safety. This in itself is part of the problem. If you choose to bypass sections of regulation that have cost implications, then you can. Until there is a resultant tragedy (or indeed a large number of people lose their money) no one sits up and takes any real notice.

Consequently today you can get quotations to manage a complex block of flats that range hugely in price for the overall service. The agent’s fee itself may vary even more widely. Why? Because you are not comparing like for like. I have turned down management opportunities where the customers do not accept that it is prudent to ensure that risk assessments are carried out periodically, where they do not accept it is important to revalue for insurance purposes and where significant payment to the residents’ management company directors is not seen as ‘unusual’.  I have had to withdraw from advising a group of residents who wished to manage a major works project themselves and avoid all that nasty, costly consultation and supervision.

Statutory requirements and regulations do not exist to be bypassed – they are rarely advisory. They exist to protect us all from poor or criminal practice and improve our chances of survival. Seeking best value is one thing, cutting out costs altogether is another.

A ‘race to the bottom’ is normally defined as a competitive situation between countries or states that leads to dismantling of regulatory practice in order to seek ever better competitive advantage.  We are seeing the same thing happen in property management and it is to the ultimate detriment of our client’s assets.

Of course, it is also to the detriment of the workforce and the customer who bear the brunt of such a race as standards and pay rates are eroded in order to ensure that more business is won. How this effects the standard of management can already be seen on schemes that have had little or no credit control activity, poor health and safety records and constant turnover of on site staff.  It leads to a downhill spiral that normally takes two to three years to reveal itself. How do I know? Because we are in the process of rescuing a number of schemes that have chosen their managers entirely on price and are now trying desperately to collect outstanding sums, raise budgets and get their asset back on track.

Consumer pressure has good case to exist in the residential sector. Cases of mismanagement and overcharging are myriad. But beware! There are many who are now seeking to take advantage of such misfortune who have neither the track record nor the expertise to undertake what remains a highly skilled role.

Cheapness and good value are not the same thing. Get the best value by opting for those who can do a proper job at a fair price, check their qualifications and track record, ask for examples of similar properties and visit them and speak to customers.  Who owns them, what are their unique aspects and what is their mission? Speak to the manager on the ground. Finally, compare them with others on a like for like basis. This may mean creating a unique tender document that all parties have to complete. The public sector gets this right with pre qualification questionnaires (are you qualified to put a price in?) and then a tender document that all successful applicants must complete. I have just seen the first one of these issued for a large resident controlled management – it is a wonderful thing!

Finally, I cannot stress enough that if you are seeking a new manager then protecting the value of your asset now and into the future is paramount. Saving money by cutting corners is just plain silly – we still have a long and difficult road to travel.