Bulk Buying Saves Money — But Are There Tradeoffs? The Pros and Cons
July 5, 2012 — Last January, Villas on the Bay, a 42-unit condominium in East Moriches, Long Island, switched to Fairfield Properties, a larger property manager than the one it formerly had. The 30-year-old community had capital improvements on the horizon and thought Fairfield could get them better prices.
Immediately, Fairfield signed the condo onto its master insurance policy for liability and property coverage, as many property managers do. Because the plans pool risks for several buildings, premiums are lower. The new policy saved Villas $20,000 a year. However, if Villas ever leaves Fairfield, it will no longer benefit from the company's master policy.
It seems like a no-brainer. Property managers have found that by pooling their clients' demand for goods and services, they can pass along savings. The managers rely on bulk purchasing for everything from hiring contractors to ordering commodities like electricity and heating oil. "You get a better pricing structure because of the volume," says Dan Wurtzel, president of Cooper Square Realty.
But buying in bulk has its limits. Some managers find that the cheapest deal isn't always the best one for an individual building. And some boards are skeptical of the savings, preferring to stick with vendors they already know.
The Incredible Bulk
Peter Lehr, director of property management for Kaled Management, uses bulk purchasing for a variety of services. For the past four years, he has bundled all his buildings together when sending out bids. By offering a single elevator inspector his entire portfolio of about 60 properties, for example, he's been able to reduce an individual building's inspection bill by 50 percent in some cases, he says.
Bulk options don't work in every situation, however. Although Villas could have joined Fairfield's master flood insurance plan and saved substantially, the board decided against it. Because Villas is a seaside community, board members worried that there would not be enough coverage available to meet their needs if a major event affected other properties in the master policy. "We didn't feel comfortable going all the way," says Villas board treasurer Kim Blackmore.
Sizing It Up
Critics of bulk arrangements argue that property managers can't take a one-size-fits-all approach to buildings. If a property has a unique garden with exquisite landscaping, it may require a sophisticated gardener, and the one with whom the property manager has a deal with may not be the right craftsman for the job.
"You don't necessarily go with the cheapest contractor, especially when you're designing hallways or lobbies," says Steve Osman, president of Metropolitan Pacific Properties, which manages 38 buildings in New York City. "You may want someone where their work is just extraordinary. You're buying for the quality."
Also, says Osman, the lowest bid isn't necessarily the best deal. A gardener may offer the lowest price and then bill a la carte for services that other gardeners included in their base price.
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