Laissez-faire prevails in nightly-rental industry
February 23, 2010
Last summer Sen. Kevin Van Tassell, R-Vernal, whose 26th District includes Park City, pondered sponsoring a bill to regulate the vacation rental industry. The previous spring two of Park City’s largest and most-respected property-management companies imploded under lost sales from the recession.
On Tuesday, Van Tassell told The Park Record he had decided against sponsoring legislation because he was satisfied with changes voluntarily made within the industry.
"I opened a bill file, but as people worked on that it appeared there was a resolution with the Realtors some wording in the leases. I decided to allow that to work and go from there," he said.
The resolution with the Realtors was an agreement that condominium buyers need to be better educated on how to choose a property manager, said Park City Area Lodging Association officer Teri Whitney.
Van Tassell said what he wanted most was for certain monies to be kept separate from the normal working budgets. That practice might have prevented Deer Valley Lodging and David Holland Resort Lodging from finding themselves unable to pay condominium owners their portions of January and February profits last March.
But that isn’t part of the resolution worked out. Property managers will do nothing different moving forward because of outside pressure. If everything goes according to plan, property managers will need to justify their accounting practices to potential clients before winning their business.
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The topic has been hotly debated because of the fallout from the two failed companies last spring. In addition to hundreds of condo owners not getting paid their portion of profits from guests staying in their properties, hundreds of thousands of tax dollars were collected but never paid, and many employees lost jobs. Some of those employees say insurance premiums were taken out of checks but never passed on to insurance providers leaving them with medical bills they shouldn’t be responsible for. Other victims include unpaid vendors and people with unreturned deposits.
But state regulation is not the answer and cannot prevent such crisis, Whitney explained.
"Regulation does not fix bad business practices," she said repeatedly during a Wednesday interview.
Look at banking, she said; it’s one of the most heavily regulated industries and that didn’t stop the failure of hundreds of banks since the recession started. Furthermore, the vacation-rental industry is too complicated, with too many pieces to be regulated as a single industry, she said.
Because property managers handle rentals, they were originally under the umbrella of real estate regulation. But they more closely resemble hotels. The rules they were expected to abide by never fit their operations. Eventually the industry was deregulated.
Property managers didn’t lobby for deregulation, Whitney said. To the contrary, they spent hundreds of hours in meetings and thousands of dollars in legal fees trying to work out solutions. Eventually it was the real estate profession that decided the industry did not belong under their oversight.
Why wasn’t a new oversight organization created? Because the industry includes very different kinds of businesses, she explained. Some property managers don’t handle nightly rentals, for others, that is the bulk of what they do. Most nightly-rental companies rely on on-line reservation companies which don’t do any property management. Then there’s the travel and lodging Web sites like Orbitz.com. For some stays, money changes hands numerous times before it reaches property managers.
Then what unit the stay will be in may change several more times, making it impossible to know at the time of payment which home owner is due a portion of the revenue.
The agreement with the real estate industry is the perfect solution because vacation condos are purchased as an investment. It should be the responsibility of the owners to fully understand how their investment is managed. No professional organization or governing body can prevent individual businesses from managing investments irresponsibly, she said.
Mark Seltenrich, president of the Park City Board of Realtors said Realtors desired this because they wanted to help clients choose a property manager that was right for them. If a new buyer wants their share of nightly-rental profits stored in a separate account, they can call around and find one that does that.