Condo resident believes property management fee is inappropriate

Q: Have you ever heard of a property management company charging a condo association a 4% fee for a “loan administration”? This fee would be on top of the loan’s interest rate.

An attorney I know has suggested that the fee is not legal. I spoke to the department of professional and regulatory affairs, and I got the impression that the fee was not appropriate. They directed me to the relevant state statute and told me how to file an inquiry and a complaint. Thought I would see what you would say about this.

A: Given the little information you gave us, we can’t tell you if the fee is legal or not. We’d leave that opinion to an attorney who could review all of your documentation and has knowledge of the law in that area.

That said, Sam sees all sorts of fees these days from a variety of companies. So, we’re not exactly surprised to see a 4% loan administration fee from a property management company. A question you might want to ask: What exactly does this fee cover?

Perhaps the management company was hired to do the bookkeeping and billing. At some point, the association asked that same management company to also handle the payments on a property loan, along with billing each unit owner for their share of payments on the loan. That might be more complicated than it sounds.

Let’s say the loan was for $1 million and the annual fee paid to the management company is $70,000. And let’s say the property management company wants to charge the HOA 4% of the $70,000, or $2,800 per year to do the billing. But, if the management company wants to charge 4% of the $1 million, or $40,000, on top of the $70,000, that would seem excessive.

If they want to just add $2,800 to their annual management fee of $70,000, and if your building has 20 units, you’re adding about $12 per month to your HOA cost. Seems like a lot to bill each unit owner their share of the loan repayment. (If it’s even a special assessment.)

I guess we’d need to know more about the fee to even know whether the charge is reasonable or not, much less whether it’s legal or not. If you’re on the board, you should request more transparency with your property management company. If you’re an owner, talk to the HOA members to see what they know about the fee and whether they’re going to pay it or negotiate something less.

Keep in mind that many associations set up a loan with a bank and then give homeowners the option to pay their share of the loan over a long period of time with a higher interest rate, or a shorter period of time with a lower interest rate or to pay their share off all at once now. In addition, the condo owners might be required to pay off their share of the loan in full upon the sale of the condominium.

All of these choices create paperwork and will cost someone time and money to keep a paper trail and to bill the right amount to each owner. A management company would want to get paid more to do all of that for the association if their base fee does not include this service.

Remember, the contract between the association and the management company is a private agreement that does not involve any governmental agency. Most governmental agencies won’t get involved with private party transactions. Your best bet is to understand the terms of the agreement, then talk to the board of directors of your building to discuss any issues you find troubling.

Ultimately, it’s up to the board to decide how to proceed. Given that the board of directors likely hired this management company, and agreed to pay for the services the board contracted for, you may not get too far. But you might get a better understanding of the deal.

If, after all that, you think the management company’s fees are too high, you can run for a board seat to assist your board in evaluating contracts in the future. Then, you’ll have input in hiring contractors and vendors to help manage the property.

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(Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, a financial wellness technology company. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through her website, ThinkGlink.com.)