Lease renewal fee after one year lease?

Cleveland, Ohio
General Landlording & Rental Properties
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Lease renewal fee after one year lease?

Andy Ramos
Member since 2024 · 3 posts · 3 votes

I am attempting to work with a property manager but I'm seeing a read flag and would love some input.

This company wants to charge a 1 month placement fee for a new tenant, which I am totally fine with but also is saying they would charge me that fee AGAIN when the tenant renews their lease the following year. This does not seem standard to me, and maybe illegal? Any thoughts? 

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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
2y
Quote from @Andy Ramos:

It is not illegal, but it is unreasonable.

The leasing fee covers all the work associated with moving the old tenant out, supervising the turnover, marketing, screening applicants, getting them under contract, moving them in, etc. It's the bulk of our work on any lease, which is why we charge a large leasing fee.

Lease renewal requires very little work, usually 1-2 hours. It's fair to charge for this additional work, but it's not nearly as much as placing a new tenant and shouldn't be as high.

I charge 50% of a month's rent for placing a new tenant. I charge a flat $200 for a lease renewal.

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  • Dan M.
    Real Estate Investor · Unadilla NY · Member since 2017 · 418 posts · 297 votes
    2y

    Everything is negotiable.  I whole heartedly do not agree with placement fees because its better for the management company to allow for turnover. Why make 5-10% when you can make 100%? Its a serious conflict of interest.  

    4Reply
  • Sam Applegate
    Member since 2019 · 59 posts · 30 votes
    2y

    @Andy Ramos

    How much are they charging you per month? Property managers usually have a placement fee and often a renewal fee too, but it's generally not a full month's rent for renewal. It's more commonly a flat fee or maybe half a month's rent. You should be able to negotiate that, though.

    It's pretty common for high-end property managers to charge around 10% of gross revenue, plus one month's rent for placement, and some sort of renewal fee. Personally, I find that a bit steep and would probably look for another company. But if it's a single-family home in a remote area, it might make sense because they need to make it worth their while to manage.

    1Reply
  • Adam BartomeoBusiness Member
    Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
    2y

    Illegal... LOL! You are funny. No, it is NOT illegal to charge the owner a release fee. Yes, it is extremely common in our industry. We do not charge this fee nor do we feel that it should be charged unless there is a specific reason behind it.

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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    2y

    I'd look for another PM or negotiate.  Yes there is a small cost associated with generating the lease renewal, but charging 1 month's rent is ridiculous for a renewal.  Mine charges a flat fee for both placements and renewal which I think is better than charging 1 month's rent.  

    1Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    2y
    Quote from @Andy Ramos:

    It is not illegal, but it is unreasonable.

    The leasing fee covers all the work associated with moving the old tenant out, supervising the turnover, marketing, screening applicants, getting them under contract, moving them in, etc. It's the bulk of our work on any lease, which is why we charge a large leasing fee.

    Lease renewal requires very little work, usually 1-2 hours. It's fair to charge for this additional work, but it's not nearly as much as placing a new tenant and shouldn't be as high.

    I charge 50% of a month's rent for placing a new tenant. I charge a flat $200 for a lease renewal.

    The DIY Landlord Book4.7248 Reviews
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    6Reply
  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    2y

    @Andy Ramos a one-month Placement Fee is industry average.
    - Just be careful as many companies are offering flat fees, but do NOT tell owners they may only be putting their rental on Zillow and their website, but NOT the MLS.

    Renewal Fees typically are flat-fee based and another one-month fee is unreasonable. 

    Logical Property Management4.9454 Reviews
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  • Bob S.
    Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
    2y
    Quote from @Andy Ramos:

    I am attempting to work with a property manager but I'm seeing a read flag and would love some input.

    This company wants to charge a 1 month placement fee for a new tenant, which I am totally fine with but also is saying they would charge me that fee AGAIN when the tenant renews their lease the following year. This does not seem standard to me, and maybe illegal? Any thoughts? 


     Yes SMALL fee however is the norm, I know most out there , happy to recommend 

    1Reply
  • Sandy Hilsinger-Pate
    Realtor · Eastvale CA · Member since 2017 · 3 posts · 2 votes
    2y

    I have several rentals in Ohio and only one of them is with a management company. The fees they charge are high considering the service is lackluster. I manage the rest on my own. You may want to consider hiring an agent that will place a tenant and allow you to manage from then on. I do my placements and turn them over at lease renewal time, but not many would want to do all the work. Just a suggestion to consider. 

    2Reply
  • Bob S.
    Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
    2y
    Quote from @Andy Ramos:

    I am attempting to work with a property manager but I'm seeing a read flag and would love some input.

    This company wants to charge a 1 month placement fee for a new tenant, which I am totally fine with but also is saying they would charge me that fee AGAIN when the tenant renews their lease the following year. This does not seem standard to me, and maybe illegal? Any thoughts? 


     I am not aware of any PM co that charges the same fee for the original placement. Im aware of all the PM co's out there, happy to reccomend 

    1Reply
  • Lynn McGeein
    Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
    2y

    When we were looking for property management, we had to read through the fine print on MANY management agreements as they all sounded great when speaking with them, but most actual management contracts were filled with stupid additional charges.  A one-month placement fee is too high, and definitely too high for a renewal.  In NC, we went with a company who does not charge any placement fees, just an approx. $200 yearly admin fee and 8% of rents.  They focus on finding long-term tenants, and it's a win-win as less turnover is less expense for us and less work for them.  It took a while to find a good one, but worth the research.  Don't sign a management agreement unless you read through it carefully.     

    1Reply
  • Andy Ramos
    OP
    Member since 2024 · 3 posts · 3 votes
    2y

    Thanks everyone for your input. I decided to move on and find a new management company! 

    0Reply
  • Bob S.
    Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
    2y
    Quote from @Andy Ramos:

    Thanks everyone for your input. I decided to move on and find a new management company! 


     DO you have a property there ? 

    0Reply
  • Andy Ramos
    OP
    Member since 2024 · 3 posts · 3 votes
    2y
    Quote from @Bob S.:
    Quote from @Andy Ramos:

    Thanks everyone for your input. I decided to move on and find a new management company! 


     DO you have a property there ? 

    Yes, I have a triplex in Cleveland Heights 
    1Reply
  • Sandy Hilsinger-Pate
    Realtor · Eastvale CA · Member since 2017 · 3 posts · 2 votes
    2y

    I have a management company for one of my places, and I would never use them again. When this tenant moves, I will not renew their service. The contract is tied to the tenant, so I am stuck until then. I would recommend calling a local realtor and asking who they would recommend. They know the good companies from the bad ones, and some of them actually offer limited management services too. Just my opinion...

    0Reply
  • Account Closed
    Member since 2024 · 2 posts · 0 votes
    2y

    It's negotiable everything is.

    0Reply
  • Bob S.
    Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
    2y
    Quote from @Sandy Hilsinger-Pate:

    I have several rentals in Ohio and only one of them is with a management company. The fees they charge are high considering the service is lackluster. I manage the rest on my own. You may want to consider hiring an agent that will place a tenant and allow you to manage from then on. I do my placements and turn them over at lease renewal time, but not many would want to do all the work. Just a suggestion to consider. 


     Who do you call for repairs, to place 3 day notices, walk throughs ect ? I would never want to be bothered with any of it. IMO the 8% PM fee is meaningless. 100 bux a month on avg. 

    0Reply
  • Sandy Hilsinger-Pate
    Realtor · Eastvale CA · Member since 2017 · 3 posts · 2 votes
    2y

    I have established a group of professionals that are a phone call away when I need service. Tenant schedules directly and items get addressed quickly. Have only had to process one eviction and it was to the tenant the management company placed. Hired a lawyer to handle it. Otherwise I am blessed to have great tenants and have never had to serve a 3 day. 

    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    2y
    Quote from @Andy Ramos:

    I am attempting to work with a property manager but I'm seeing a read flag and would love some input.

    This company wants to charge a 1 month placement fee for a new tenant, which I am totally fine with but also is saying they would charge me that fee AGAIN when the tenant renews their lease the following year. This does not seem standard to me, and maybe illegal? Any thoughts? 


     A 1 month's rent leasing fee whenever a new tenant is placed is common practice. When an existing tenant's lease is renewed there is typically a flat fee lease renewal fee. This renewal fee is almost always lower than the 1 month's rent leasing fee.

    0Reply
  • Sean O'KeefePro Member
    CPA | Accepting new clients | 50 States · Member since 2022 · 1k+ posts · 871 votes
    2y

    @Andy Ramos hmm .. based on working with our clients and getting intel on stuff like this. I'd negotiate the fee on tenant renewal or find new property manager.

    [email protected]628-241-0888
    0Reply
  • Bob S.
    Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
    2y
    Quote from @Sean O'Keefe:

    @Andy Ramos hmm .. based on working with our clients and getting intel on stuff like this. I'd negotiate the fee on tenant renewal or find new property manager.


     I am not aware of any pm co that will " custom build" pricing for a client. 

    0Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    2y

    @Lynn McGeein, @Theresa Harris, @Sam Applegate

    Curious as to why all of you think a one-month Placement Fee is too high?

    So, let's really look at what it covers!

    If you just hire an agent, most of them are going to charge a one-month Leasing Fee because they offer 50% of it to an agent that brings them an acceptable tenant. 

    This is no different than an agent charging a seller a 6% listing fee to sell their property because their going to offer 50% of it to an agent that brings them a buyer.

    What happens if the agent works hard and finds their own tenant or buyer? They typically keep the entire amount.

    In our experience, many PMCs do NOT put rentals on their local MLS and so only charge 50% of one-month of rent - but they do NOT tell the owner this.

    2 years ago, when rentals (and sales) were happening in less than a week, this strategy may have worked, but with rental Days On Market increasing nationwide by 38% since 2022, it's becoming more important to list rentals on the MLS to increase exposure via getting agents involved.

    How's a PMC, only charging an owner a Placement Fee of 50% of a month's rent or less, going to compensate an agent that brings them an acceptable tenant AND cover the PMC's marketing costs?

    [email protected]248-209-6824
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  • Lynn McGeein
    Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
    2y
    Quote from @Drew Sygit:

    @Lynn McGeein, @Theresa Harris, @Sam Applegate

    Curious as to why all of you think a one-month Placement Fee is too high?

    So, let's really look at what it covers!

    If you just hire an agent, most of them are goig to charge a one-month Leasing Fee because they offer 50% of it to an agent that brings them an acceptable tenant. 

    This is no different than an agent charging a seller a 6% listing fee to sell their property because their going to offer 50% of it to an agent that brings them a buyer.

    What happens if the agent works hard and finds their own tenant or buyer? They typically keep the entire amount.

    In our experience, many PMC do NOT put rentals on their local MLS and so only charge 50% of one-month of rent - but they do NOT tell the owner this.

    2 years ago, when rentals (and sales) were happening in less than a week, this strategy may have worked, but with Days On Market increasing nationwide by 38% since 2022, it's becoming more important to list rentals on the MLS to get agents involved.

    How's a PMC, only charging an owner a Placement Fee of 50% of a month's rent or less, going to compensate an agent that brings them an acceptable tenant AND cover the PMC's costs?


    In my local area, most MLS rental listings only offer agents 10% of 1 months' rent to place a tenant, some even only 5%. I've helped my sellers find rentals in between homes or help clients' kids find a rental, so I've dealt with MLS rentals, but I don't normally handle them. I think most of these PMs make a lot of money off application fees, and have heard many stories from renters paying lots of application fees without getting refunded if the unit rents to someone else. I place my own tenant in the only one I still manage myself. It has never taken long to find an applicant, and I've never used MLS to do it. Also, I'm one of those sales agents who have never charged my listing clients 6% and as a buyer's agent actually give my buyers a large credit at closing from my side of the commission (must stop once buyer's commissions aren't advertised). I became an agent years ago because I felt and still feel 6% is ridiculous unless it's clearly a problem property or a very low sales price. My out-of-state property management charges me a yearly admin fee of approx $200 (up to 10 properties inclusive with the one fee), and does not charge for tenant placement, but will add on Zillow ad expenses (I think it was like $57 last time they advertised one there). I've been with them for about 15 years, and have recommended them to many. They do offer the option of placing it on MLS, but owner can choose the fee they offer to other agents. So there are multiple valid reasons why I think 1 months' rent is way too high to place a tenant.

    0Reply
  • Michael RosenBusiness Member
    Property Manager · Red Bank, NJ · Member since 2024 · 9 posts · 6 votes
    2y

    Hi ... I am in NJ and we charge 1 month for a new tenant fee (1/2 month if it takes more than 30 days after listing property to getting the tenant into the property) we do NOT have a renewal fee for an existing tenant and encourage and work with the tenants to keep them happy and hope that they will renew and not cost our owners an empty unit nor missing any rent in between tenants. We try to be fair to our owners and tenants both.

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  • Kevin Sobilo
    Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
    2y
    Quote from @Michael Smythe:

    @Andy Ramos a one-month Placement Fee is industry average.
    - Just be careful as many companies are offering flat fees, but do NOT tell owners they may only be putting their rental on Zillow and their website, but NOT the MLS.

    Renewal Fees typically are flat-fee based and another one-month fee is unreasonable. 


    In some places that is not an issue. For example, in my local MLS members are required to enter any rental listings $1,000/month or greater into the MLS.

    1Reply
  • Jeremiah Dunakin
    Member since 2022 · 186 posts · 192 votes
    2y

    I will never understand property managers. If the tenant is staying. Why charge such a fee. Give same contract with any changes. It’s a five minute job. It takes longer for computer to boot up than to do the job. I guess I don’t understand the paying another fee on top of the normal fee. What is that they do. Don’t they get paid to manage a property? Isn’t a lease part of managing it? I just can’t fathom these PMs

    0Reply
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