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Agency Costs in Apartment Property Management Contracts
Author(s) -
Rosenberg Sidney B.,
Corgel John B.
Publication year - 1990
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00516
Subject(s) - apartment , agency (philosophy) , business , property management , agency cost , renting , property (philosophy) , finance , sample (material) , property rights , management fee , competition (biology) , actuarial science , economics , microeconomics , law , corporate governance , philosophy , real estate , epistemology , shareholder , ecology , chemistry , open end fund , chromatography , institutional investor , biology , political science
Because fees for property management services are based on gross rental collections rather than on net operating incomes, property managers may not always act in the best interest of property owners. This study is an examination of the agency costs that result from the conflict of interests between owners and managers. A nationwide proprietary sample of 242 apartment properties is analyzed to compare agency costs of four distinct types of ownership structures. Agency costs, measured as operating expenses per square foot, are found to be significantly higher for institutional owners than for noninstitutional owners, but not significantly higher in cases where no competition for property management services exists. We conclude that agency costs of property management contracts are significant and the fee provisions of standard property management contracts should be changed to better align the interests of managers and owners.