Property Management Agreement

8 Replies

Hello, I'm reviewing a property management agreement (I would be the landlord) with the following terms:

- Management fee is 10% of rent
- Charge of 15% of rent with each new tenancy.
- Landlord to pay property management group for termination (two months property management fee if property is leased, $250 cancellation fee is property is not leased).  30 days notice required.
- $50 monthly fee when property is vacant.
- 10% for rental renewals.
- Lots of other miscellaenous fees including initial clean up, property preparation, set up, marketing, insurance coordination, document duplication, re-keying, statutory agent fee, fees for evictions, etc.  Property management group may also charge tenant fees, which they would retain.

This is my first time looking at one of these agreements, but it sure feels excessive!  Thoughts?

Hello,

I believe that is to much.  I am a new owner also and I have a property manager.  Ten percent of the monthly rental is her fee.  She also gets the first month rent when a new tenant moves in.  Hopefully this will help you out but I believe those fees are excessive.

Good Lord...you have to pay them when the property is vacant? Next!

Sorry I can't help you given my company is in NJ but this is exactly why we charge a simple flat fee of 8-10% of rents. We don't markup on anything, no hidden fees, no admin fees. Keep looking. 

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Agree with @Peter Tverdov We charge a flat 10% of rent collected, and 50% of the first month rent. If there are changes to the lease at lease renewal, we also include a $150 charge for our time updating and working with the tenant to sign the agreement. We don't assess other fees, no admin or markups on repairs. Unless they come very highly rated, I'd keep looking. Always interview at least 3 companies to see who is a good fit. Pricing and features vary wildly between companies.

I don't think you'll find it helpful to ask simply whether this is excessive.

I manage properties in Cleveland, but I actually lived in Portland for a few years. Despite the differences between the PDX and CLE markets, our management company charges many fees similarly to what you describe here.

You should get sample management agreements from a few more PMs in the area, then see if they will offer a consultation (phone or in person) so you can ask why they charge some fees, such as vacant property fee (most PMs don't charge during vacancy, but even my company has exceptions - and we are still responsible for keeping an eye on your property, ensuring utilities are paid on your behalf, etc), or why there is a "marketing" fee in addition to the leasing fee (although 15% for a leasing fee seems very odd and low).

Keep in mind that some PMs just list all their fees and not all of them will necessarily apply to you; also some PMs will charge you for all the same things, just structured differently - so a higher leasing fee instead of low leasing fee plus separate marketing fee.

I recommend you really interview them (and maybe a few others) and see if the services they're offering really set them apart.

Good luck!

Morning Ryan!

Pricing can be tough to compare because you're not always comparing apples to apples. Or even apples to fruit. With different methods that others have already talked about, it can tough to figure out what you'll actually be paying as a management expense. 

If you're talking about a place renting here in Portland, you've got to keep in mind that the constant churn of new rules and regulations coming from the city and state are driving overhead costs up for PM companies as well. It's a tough business to operate effectively, especially in our environment...what I'm really saying is that a number of PMs I've talked to in the last few months are actively raising fees for their Portland rentals (and some across the board) to help with the extra staff, time, and attorney consult fees they're incurring due to the new laws. 

Best advice is to talk to a few more and compare not just fees, but also what they do and what their reputation is. Ask yourself, when was the last time you went the cheapest route with a purchase of anything and were happy with the result?

Mathew

@Ryan H. Based on the thread it seems like there are some regional antics at play here. That said, both @Peter Tverdov and I both come from a state that is also very regulated and has long winded process for turning over units and we both probably agree that the fees for this management company are excessive. What I think its important is how the pricing could possibly incentivize undesirable activities from the property manager.

For instance, if the property manager gets a full 1st months rent to fill a unit then there is a clear incentive to turn units over. Another is a vacant unit fee, if the vacant unit fee is $50 but rent is $700 then there is only a $30 difference between an occupied unit and an unoccupied unit. You want the fees to incentivize the assets performance and de-incentivize undesirable activities. Examples would be low fill rate charges but higher management fees.

Lastly, that entire last paragraph you state of all those additional fees seems a little startling. 10% is typically on the high end for management fees. Normally this fee is associated with "all-in" property management (taking care of most elements of the property with minimal activity for the owner). It looks like they are charging the 10% of an "all-in" PM but also all of the fees of an "a-la-cart" PM. Definitely call around.


Hello @Ryan H.  It does sound like the fees are a little high.  Normally if a company charges a higher management fee (10%), the extra fees would be lower, and fees would be higher with a lower management fee.  It sounds like they are charging both higher management fees and other fees.  I know there are a lot of successful companies operating this way, but it just doesn't sit well with me.  I agree 15% leasing commission (from first month's rent) seems strange.  Are you sure it's not 50%?  

I see nothing wrong with paying a fee while the property is vacant.  I don't think it gives the PM incentive to not rent the property.  I feel terrible when a property does not rent quickly, as if I've done something wrong.  $50 per month is not worth having an upset owner.  PM's should do whatever they can to keep their owners happy.  I would much rather keep properties full and everyone happy.  The extra fees for leasing commission, marketing fees, vacant fees, etc. are not worth disappointing our clients and possibly getting negative reviews.  Companies that don't care will likely not be in business too long and will certainly have negative reviews.  

Back to your particular situation, if you have done your homework and interviewed your PM prospects, you should run some scenarios to see what your possible expenses would be.  Start a spreadsheet with different situations run over a two year period.  Add columns for every possible fee each company charges, and factor in some reasonable examples.   #1 may be a tenant moves in and stays one year, then vacates.  You have to factor in the vacancy and two leasing commissions.  #2 may be a tenant who moves in and stays for two years.  #3 may be a tenant who moves in and needs to be evicted after 6 months because they lost their job.  Add in some scenarios where the extra fees would kick in.  Add up all the costs for the two years, then divide by two to get your annual PM operating costs for the different scenarios.  Factor in the charges from other PM companies to help determine which may be less expensive.  However, I'm a big advocate of not choosing companies based solely on price.  You may need to factor in the "X" factors.  Communication is key!!!.  Best of luck.