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Tricks of the trade…outrageous markups?

I want to begin by saying that this apparently something which goes on throughout the property management industry, so I’m not trying to indict my company or make them out as something bad. Rather, this is an industry secret (?) that I’ve only just learned about.

So here goes:

Our tenants pay a pretty fair price for their HVAC (heating, ventilation, a/c) as a part of their lease. It costs us around $.70/hour and they pay less than $1/hour. I’m not sure of the specific amount.

However, like most property management places, we charge extra for overtime HVAC. So if you want it nights, weekend afternoons, or holidays, you get a special bill. I had to compute the special bill for a few of our tenants and was astonished by the markups.

Now, overtime HVAC costs around $.70, just like regular. The engineers take a few minutes a month to change dates & times in the computer. However, when it’s overtime, tenants are charged about $35/hour. That’s more than 40x what it costs the property management company! 40x!

I asked my boss and she said that’s the way it is everywhere. As you can imagine, property management groups make a real profit on that.

Another way they make money is when there are multiple tenants on the same floor and both need HVAC running at the same time. HVAC systems normally work for a floor at a time (or so I understand), so the second tenant to make the request is paying for what the other tenant is already providing. That means the property management group is getting $70ish/hour and still only spending $.70/hour. Lots of money.

Now these are businesses, not residential properties. And they know that they’re going to pay when they ask for the overtime. But I find it astonishing. (I get surprised by a lot of numbers in this business, since I like to think frugally and it’s not a frugal world out there.) It also feels a bit unethical to me (except that tenants know the “rules” and pay fair rates for normal HVAC).

And it leads me to ask: Where else are we paying outrageous markups, even without realizing it?

{ 4 comments… read them below or add one }

Hilda October 17, 2007 at 12:51 am

I have one: vending machine items.

They’re not as outrageous as the overtime HVAC price but the mark up on those things are still at least 100%.

Tim R. October 17, 2007 at 9:18 am

I would have to say….


Having recently moved from the business world to the non-profit sector, I can tell you that unreasonable mark ups where one of the reasons I was looking to get out of the business sector.

Mrs. Micah October 17, 2007 at 9:54 am

@ Hilda, definitely. I only buy from vending machines a few times per year because it’s ridiculous. They charge more for a can of soda than I can (probably) spend on a 2-liter bottle!

@ Tim, I’m with you there. When I can, anyway.

Andrew Stevens October 17, 2007 at 11:37 am

Most consumer goods don’t have retail markups anything like that. (You can only get away with that sort of thing if you’ve got a captive market.) The worst are probably greeting cards where a 100% suggested retail markup is common. (Just about anything you might find in a gift shop has a huge markup and has to have for the gift shop to stay in business.) Breakfast cereal used to be pretty bad (everybody used coupons back then), but I think that changed back in the early ’90s.

By the way, gas probably has the lowest retail markup of anything you might find in your local convenience store.

You want my opinion? Don’t sweat the markups. What matters isn’t how much profit the other guy is making, but ensuring that you’re only paying what it’s worth to you. If you’re paying less than it’s worth to you (which should be the case on every single purchase), then you’re doing fine even if the other guy is making a mint.

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