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Agency Costs in Apartment Property Management Contracts

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  • Sidney B. Rosenberg
  • John B. Corgel

Abstract

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.

Suggested Citation

  • Sidney B. Rosenberg & John B. Corgel, 1990. "Agency Costs in Apartment Property Management Contracts," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(2), pages 184-201, June.
    • Handle: RePEc:bla:reesec:v:18:y:1990:i:2:p:184-201
    DOI: 10.1111/1540-6229.00516
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    Cited by:

    1. Roy T. Black & Hugh O. Nourse, 1995. "The Effect of Different Brokerage Modes on Closing Costs and House Prices," Journal of Real Estate Research, American Real Estate Society, vol. 10(1), pages 87-98.
    2. Thomas M. Springer & Neil G. Waller, 1996. "Maintenance of Residential Rental Property: An Empirical Analysis," Journal of Real Estate Research, American Real Estate Society, vol. 12(1), pages 89-100.
    3. John D. Benjamin & Peter T. Chinloy, 1995. "Technological Innovation in Real Estate Brokerage," Journal of Real Estate Research, American Real Estate Society, vol. 10(1), pages 35-44.
    4. Fang-Ni Chu & Chin-Oh Chang & Tien Foo Sing, 2013. "Collective Action Dilemmas in Condominium Management," Urban Studies, Urban Studies Journal Limited, vol. 50(1), pages 128-147, January.

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