Kickbacks in the City

There is a long held practice with Chicago property management companies to accept compensation for arranging certain work in behalf of a client. The following are examples of this practice:

The Board approves a proposal to paint the common areas of a building based upon the recommendation of the property management company. The management company tells the painter to charge the building "x" but requires the painter to give the management company a percentage of "x". This little financial arrangement is not disclosed to the Board.

Or, the property management firm pre-arranges for set pricing on all types of work perfomed by a vendor. The management firm charges the building more than the set pricing and keeps the difference.

Or, some property management firms actually have written right into the fine print of their management contracts that they get to charge the building a percentage of every repair or replacement they are involved in. So, if the building approves a proposal to tuck point the facade for a million dollars, the management firm actually charges the building a percentage of that proposal.

Or, the management company establishes a separate wholly owned subsidiary for the express purpose of providing their clients with various services such as maintenance, snow removal, common area repairs and the like. They tell the client and the homeowners who call asking for a referral to a good painter or plumber that they will arrange for the work to be completed. What the client or the homeowner does not know is that the management company has obtained a quote for the job from a vendor and has added on a fee or percentage simply for making the arrangement.

Or, and this is my favorite, the management company swears that they do not participate in any of these practices and then when the owner of the management firm needs work done on his personal home, there is no charge.

The bottom line is that there are lots and lots of ways that your management firm may improperly benefit from their relationship with their clients. Management firms routinely deny that they participate from these practices and hide the reality from their clients. However, if it walks like a duck and quacks like a duck--it is a duck.

The fair, honest and decent way to service the client is to charge ONLY the management fee that is pre-agreed upon and nothing more. The management company should negotiate the best possible prices for all work and pass all discounts and savings on to their clients 100%.

Rick Holtzman
Prairie Shores Management Co.