Forrest White, director of asset engineering for Alliance Residential Co., has a tight budget for the rehab projects he oversees at the Phoenix-based multifamily developer and third-party manager. A stickler for detail, he keeps a close eye on costs, reviewing line-by-line expenditures for the 10,000 units in Alliance's renovation pipeline. When White saw double payouts for vinyl floors at units less than a year old, he knew something wasn't right; those floors should have been covered by a manufacturer's warranty.
After investigating the problem, he learned that his on-site personnel were doing their jobs, calling in service tickets on the torn floors to make everything sharp and ready for residents to move in. The problem was, they didn't realize those repairs were covered under warranty and could be billed back to the manufacturer.
“If I see a double bill like that, obviously I'm going to question it,” White says. “But the problem with warranties is it takes somebody watching over it to make sure we get reimbursed.” Though White says it's difficult to quantify how much Alliance shells out repairing and replacing items that should be covered under warranty, he suspects it's a sizeable amount. “If you pay to replace all of the vinyl in an apartment, that's $500 right there,” he says. In fact, the average warranty service call costs about $320, according to the National Association of Home Builders.
To combat the problem, White is working with the firm's property management software provider, Santa Barbara, Calif.-based Yardi Systems, to develop a database that will automatically flag items covered under warranty. “It will look at each item based on its age, and then generate a note right on the service ticket indicating the product is under warranty,” White says. “In the end, we think it will save us a lot of heartache—and money.”
Indeed, warranty management is often an overlooked area for multifamily executives, and observers say companies often spend big money repairing or replacing items that should be covered by manufacturers instead.
Specific numbers for apartments are difficult to gauge, but production home builders budget 1 percent of a home's price for warranty expenses, according to Orlando, Fla.-based SMA Consulting. Now, with an array of tools at their disposal, property managers hope they can eliminate the problem altogether.
NO QUICK FIX The hurdle for many multifamily operators is managing information on all the units and equipment they own or oversee. At Alliance, for instance, which manages more than 47,000 units, White says just knowing which products are covered—and then making sure they're serviced in a timely manner when warranty items are identified—is a cumbersome process. It's no surprise his on-site personnel often just try to fix a problem outright: A prompt response time to residents' calls is the strongest determining factor in lease renewals, according to SatisFacts Research, a Lutherville, Md.-based industry research firm. “There is nothing more critical than the work-order process,” says Doug Miller, SatisFacts' president.
Ranjeev Teelock, vice president of property management systems at Carrollton, Texas-based software maker RealPage, says maintaining warranty records and determining who foots repair and replacement bills is tough. “The challenge that multifamily companies face is that when an appliance needs to be repaired, they don't have the warranty information available,” Teelock says. “A lot of times ... it's easier to just go out and fix or replace something themselves than it is to track down the warranty.”
The dilemma illustrates the underlying business model of warranties themselves: While they provide insurance against defects, they're only valuable if you are able to redeem them, and often times, the process of doing so seems more trouble than its worth.
AT YOUR SERVICE The good news for multifamily operators is that solutions are evolving to help capture more of the benefits of warranties by eliminating the guesswork in record keeping and reimbursement. For instance, Teelock says RealPage's purchasing and document management modules will soon allow managers to track warranty information for specific products. Designed to track an item through its lifecycle, the system will attach warranty information to service tickets generated by residents. “When the maintenance technician looks at the service request, the warranty information [will be] right there.” At the firm's user conference in July, Teelock said RealPage would start offering that function by year's end.