Does your PM have a financial relationship with their vendors?

Question

Most management agreements disclose that the PM uses preferred vendors. Almost none disclose whether there's a referral arrangement behind it.

I manage 300 units in Baltimore across multiple PMs. A few years ago I started asking a simple question whenever I saw vendor concentration..the same plumber on 6 invoices in 90 days, the same HVACc company on every service call....so, how was this vendor selected and is there any financial relationship between your company and the vendors we use?

Most PMs answer it cleanly., Occasionally the answer is vague. The vagueness is the information.

I'm not suggesting fraud is common. it's not. But preferred vendor arrangements can mean you're paying a rate that reflects the PM's relationship with the vendor, not the market. The vendor keeps the work, the PM keeps the vendor happy, and nobody shops the price because nobody has a reason to.

The question takes 30 seconds to ask. Worth having the answer on file.

Anyone had this conversation with their PM?

Bill B. · Answer

Exactly. I’m not paying market because of their relationship. I’m paying under market and getting priority service.  There’s no “emergency fee” for Sunday night water heater repair, or “we don’t have that part” calls.

About 1/3rd of my invoices have a discount listed for being the PM’s client and outside of appliance sales I’ve never found a price I could beat with a couple calls. Much less beat while having it fixed today. I think many of these vendors would suffer significantly or even go out of business without the hundreds of calls they supply.  It’s one of the key benefits they provide outside of screening and placing tenants while keeping me legal.

Jim Johnson · Answer

This is a good question and the way it's answered usually tells you a lot about how the operation is run.

Preferred vendors aren't the issue on their own — most PMs rely on them for speed and consistency. The risk shows up when there's no transparency around pricing, scope or how those vendors are being evaluated over time.

In a well-run setup, you’ll typically see:
• Clear disclosure of any financial relationships (if they exist)
• Defined pricing benchmarks or periodic checks against market rates
• Competitive bids on larger scopes, not just defaulting to one vendor
• Documentation around scope and approvals before work is done

When those controls are in place, preferred vendors can actually improve efficiency. When they're not, costs tend to drift without much visibility.

I've found the bigger signal isn't whether a relationship exists — it's how clearly they can explain their process and pricing controls when asked.

Janice Carter · Answer

@Alan Steimberg That is a smart question to ask.  As an owner, you should expect clear disclosure on how vendors are selected and whether there is any financial relationship. If the answer is vague, that is your signal to dig deeper or request multiple bids to ensure pricing aligns with the market.

Patrick O'Sullivan · Answer

I think it’s a fair and important question for owners to ask. What matters most is not whether preferred vendors are used, but whether the pricing remains competitive and the owner has visibility into how those decisions are made. The key is transparency. Also, some PMs work with preferred vendors because it helps with response times, consistency, and pricing leverage. In many cases, there may also be negotiated rates or referral arrangements in place, which are standard in the industry and typically disclosed in the management agreement or available upon request. A good PM should be able to clearly explain how vendors are selected, and whether owners are allowed to approve or use alternative licensed vendors if needed.

Peter Mckernan · Answer

A lot of PMs will have in house techs to do all the work, and that is standard when you scale. This is usually a way to reduce the amount of workload for the PM company and get a fair price on repairs. The bigger items, plumbing work, HVAC and other big ticket items are the ones that need 2-3 bigs to really get a fair dollar of how much they cost and make sure it is actually market rate or are they sky high. These are the ones that really count and hit the customer's profits hard!

Josh Love · Answer

That's a great point. Concentration among vendors, without transparency, is an aspect that's easily overlooked because everything seems normal on paper. I have started recognising this trend while doing my property evaluations – not necessarily with the intention of uncovering something unethical but simply to understand decision-making processes.

John Ledesma · Answer

Alan — good question and the framing is right. The vagueness is the information.

The flip side of this problem shows up for self-managing landlords too, just differently. Without a PM in the middle, you're the one building vendor relationships directly — which means you're also the one who has to decide whether to get competitive bids on every job or trust a vendor you've used before.

What I've found is that the vendor relationship problem isn't really about fraud — it's about accountability drift. Whether it's a PM with a preferred vendor arrangement or a self-managing landlord who always calls the same plumber, prices creep up and scope gets loose when nobody is tracking performance over time.

The discipline that works on either side is the same: document who was dispatched, what they quoted, what they billed, and how long it took. After 6-12 months of that data you can actually see whether your vendors are performing or coasting. Without the data you're flying blind regardless of whether a PM is involved.

Your 30-second question is a good start. The follow-up is making sure the answer is backed by actual records, not just a clean response.

Does your PM have a financial relationship with their vendors?

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