I'm a professional property manager and we were just informed by one of our property owners that they are selling the home to the tenants today.
Our property management agreement that owners sign has clauses that state that the property owner must pay the remaining management fees for the contract year if they break the management agreement. We also have a clause that states that if an owner sells to a tenant we placed that we get a 1% commission on the sale. Most owner wait to sell prior to renewing or re-renting a property.
I think these clauses are pretty standard for the PM industry. My issue is our owner is very upset about the fees associated with breaking the property management agreement despite having signed the contract. I get it... no one likes fees but we are only asking the owner for the lesser of the two fees which I think is fair.
We manage one other property for this owner and we don't want to upset them further but we also want to stand behind our management policies. If owners could take back and sell properties without any fee for breaking the contract PM businesses would not have much security and have seriously reduced value.
I would love to hear from other PM on how they would handle the situation.
My property manager charges 3% if I sell to a tenant they place. (I’ve never sold a rental but I still know this...)
Ps. They only charge 4.5% total to sell to a stranger/non-tenant.
@Ian I Leinwand ask them why they signed the contract.
In the end, the owner is happy. He is going to pay the management fees for the rest of the year when the property sells. Ultimately I think they just passed the cost onto the buyer. For most owners, I don't think they remember what is in the contract they sign which makes having a solid but fair contract in place essential.
@Ian I Leinwand I'd have no problem paying the fees for the rest of the year, but would not be happy paying the PM 1% as they were already paid to place the tenant and did nothing to facilitate the sale. Sure if they handled all the paper work for the sale, but my guess is the PM did nothing related to the sale (other than placing a tenant, not finding a buyer).
For most, the contract is signed and the PM manages it for years with automatic renewals where no new contract is signed. So it is easy to forget what was in the contract.