THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Saturday, June 29, 1996 TAG: 9606270310
SECTION: REAL ESTATE WEEKLY PAGE: 18 EDITION: FINAL
COLUMN: About the Outer Banks
SOURCE: Chris Kidder
LENGTH: 100 lines
In last week's article about golf communities, I mentioned Outer Banks Golf Getaways, a company affiliated with Beach Realty, that promotes tourist-oriented golf packages. Bob Oakes, president of Village Realty, Nags Head, e-mailed information about a second golf package group now selling the area's golf courses.
The Outer Banks Golf Association represents Village Realty, several area hotels and motels and other businesses. The group, like Golf Getaways, markets area golf courses in regional travel shows, national golf publications and other venues where prospective Outer Banks tourists might see the ads. If you're interested in a golf package, you can get more information by calling 1-800-946-5383.
The previous week I wrote about a service started by Outer Beaches Realty on Hatteras Island. Their Hatteras Island Real Estate Hotline provides market information and current mortgage rates. It drew an interesting response from the president of a local property owners association:
``In the case of a dual property management/real estate sales firm, is there a separation of the manner in which the money accrued can be spent? In other words, does the money accrued by the firm from commissions on rentals have to be spent on property management items such as promotion, brochures, cleaning, reservations, etc.?''
``The majority of our property owners are much more concerned with rentals than they are with sales and certainly would be very upset if they felt that the commissions that they pay to the Realtor were being used for any purpose other than property management and obtaining more rentals.''
I asked Alex Risser, Outer Beaches' owner, how he would respond to these questions.
Unless a property management firm is a cooperative of property owners, property owners - the clients of the property management company - have little to say about how the company spends its money. In private enterprise, says Risser, it's up to the owner of the business to set rates and services. If clients feel the service rendered is worth the rate, they do business with the company; if they don't, they go elsewhere.
Risser doesn't see sales and property management competing for his company's dollars. They complement each other, says Risser. Properties are added to the rental program through the sales department, while rentals create sales. Most customers want the full range of services.
Clients want to know what services they get when they sign a property management contract, but Risser says this is the first time someone has questioned how he spends his profit. ``My customers are looking for performance,'' he says. He believes most want to leave the details of how he delivers on his promise to perform to him.
I'd like to take the property owners association query a little further. It raises questions about the propriety of spending money earned from rentals on services that promote sales. I think there may be some confusion about whose money we're discussing here.
There's money that property managers collect from owners and renters for specific services (rents paid, security deposits, maintenance and repair expenses, etc.), which must be kept in trust accounts and cannot be used for anything other than the purpose and property for which it was paid.
Trust accounts are strictly regulated by the state of North Carolina. Everything about these accounts, from how ledgers are set up to how frequently balances are posted, is spelled out. The money a real estate company uses to expand services or make capital improvements cannot come from trust funds. Those kinds of expenditures must come from the company's profits, which accrue through service fees and commissions.
Commissions, whether they be sales commissions or property management commissions, represent income. As a rule in our capitalist economy, there are few, if any, government-imposed restrictions on how income earned is spent as long as contractual obligations are met and income taxes are paid.
Exceptions to this rule affect industries where monopolies exist (electric utilities, cable television and telephone companies, for example). Sometimes government does step in and require these industries to reinvest in their businesses or spend a percentage of their profits on community programs.
But this is not the case with the real estate industry: There's no question that competition is alive and well on the Outer Banks. If our economic system works, a real estate company that doesn't understand its market and doesn't make good decisions about how to invest its profits will put itself out of business.
Each real estate company must decide how to build its market niche and compete successfully. Companies are free to spend their profits to advertise their business, provide new services to their clients, buy new computer software, give employees a raise or take the year's profit and blow it on a vacation to Cancun.
And property owners are free to sign property management contracts with whichever company they chose.
Some property owners may have concerns like those expressed in the letter quoted above. They may want to deal with a property management company that specializes in rentals and doesn't handle sales at all. There are a few on the Outer Banks that fill that bill.
Other property owners may prefer a smaller company or a company that specializes in one geographic area. Others may choose Outer Beaches Realty because they like the innovation and customer appeal that services like the real estate hotline represent.
The key is to choose a property management company in which you have confidence. If you choose a company with a proven track record, one whose business philosophy you can comfortably endorse, then it's not necessary to worry about whether rentals or sales are getting the bigger slice of the profit pie. MEMO: Send comments and questions to Chris Kidder at P.O. Box 10, Nags
Head, N.C. 27959. Or e-mail her at realkidd(AT)aol.com by CNB