Question about property management commission- is this typical ?

Question

I've been self-managing my portfolio since I started investing and have decided to hire a property manager for a duplex that I'm purchasing.  I'm reviewing their management agreement and came upon:

Is this a typical compensation clause that most Management/Broker companies include in their agreements?

Randy E. · Answer

We can all joke about the "or 0.00" part but I think it is a red flag about the property manager.  Don't forget this is the person who will performing your due diligence for your tenant screening, and part of his job is to sign those tenants to leases (contracts.)  If the property manager is so careless that he would provide you with a contract that obviously negatively affects him, what does that say about how he might draft contracts with your tenants?

That mistake would be enough to convince me to perform more due diligence and screening of my own ... of whether or not to use that PM.

Ned Carey · Answer

@Ari Newman yes lots of property manages will try this.  However this one does not seem that bad. First it says they are not due anything if you hire another broker. Next it says  6% or $0.00. When the time comes just say "OK I select the $0 option. "

In contract law when something is not clear, it is generally interpreted in a way least advantageous to the person who crafted the contract. This is just poorly written.  If it were written better for them, that would be a deal killer for me. i would negotiate it out.

Frankie Woods · Answer

A commission is common for PMs when a property is sold under their management.  However, I agree with @Randy E. and @Chris K., do you really want a PM who doesn't take the time to give you a specific contract tailored to you?  However, as I've experienced in many markets, do not rush to burn bridges...because often times, the grass is not always greener on the other side...  I would sit down with the management team and ensure that both of your strategies are in line.

Chris K. · Answer

@Ari Newman

This is one example of why lawyers should not draft forms that require the client to change multiple parts of the agreement. At the minimum, a lawyer should help the client create an automated (or partially automated) forms to deal with these kinds of mistakes.

From a nerdy lawyer perspective, I have few other issues with the language as a matter of draftsmanship.  Sadly, that's too common in the legal world.

But to answer your question, the Property Management Agreement from the Pennsylvania Association of Realtor has a similar language. Commission amount seems right for my area in that most of them want 3% for the seller and 3% for the buyer all coming from the seller side.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

Question about property management commission- is this typical ?

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