I am negotiating my very first property management agreement. This management firm has a strong reputation, and I spoke with not only the firm itself at length, but also two of their customers (one of the two references was not provided by the firm). However, in reviewing their contract, some of the fees made me curious, and I was therefore hoping to solicit some feedback:
Base: 10%. Seems normal to me. One suggestion I heard was to base it off net rather than gross rent, but I suspect that would be a fight. However, what about basing it off collected rather than scheduled rent? (It also looks like they collect even if there is no tenant, which I’d like to remove –- but I think the prior sentence will address this and more.)
Leases: new tenant one month, renewal half-month. My understanding is that “normal” rates are half of the first month, not the full month. Someone suggested adding a clause to bar against high turnover, such as prorating this fee if a tenant is there for less than X months. There is also a fee in there for “acceptance of existing lease,” and I was not sure what that meant.
Pets: 100% of monthly fee. Why not 10%, as with the rest of the rent? At the very least if should be shared.
Eviction: 25% of cost. I hear this is within normal limits, but should I request a cap?
Setup fee: $200, discounted for additional properties. While this company only manages properties they rehabbed themselves, and as such is already familiar, I’m less included to question this one than the recurring fees, which will add up to far more money over time…the whole “pick your battles” thing.
NSF: 100%. I don’t follow the logic…the harm from a bounce is more to me than them, right?
Late: 100%. Seems like it should be split, as while they have to do extra work, 90% of the delayed money goes to me.
Key: $6. Fine by me.
Utility fees: 100%. Not sure what they mean by this, unless it is for vacancy periods –- any ideas?
Coordination fee: 10%. Not sure what they mean by this either –- any ideas?
Many thanks for your time and suggestions!!!
Here's what I pay: 8% Collected Rent
1 month new lease for a 12 month lease, pro-rated for less.
Pets is a deposit so they don't collect anything, I'd strike this or have it be 10% if its a monthly fee
I pay any eviction costs
Setup: Deposit for repair fund: $500
NSF: we don't accept checks cash or money order
Late 100%. (I don't agree with this either)
Rekey: 100% - I consider this a maintenance cost
Utilities: they are in the PM's name so they pay the bill and they deduct from our collected rents
Coordination fee: sounds like an extra fee.
Maybe @Phillip Dwyer can Shed some light on this discussion
You might check out a few other property managers in your location. I imagine some fees vary with region.
The NSF fee actually makes sense, because the PM would incur the fine/penalty from their financial institution.
I would think pet rent would be treated as rent, so the 10% fee structure should apply.
I would make sure you get written explanations of the miscellaneous fees you don't understand.
Thank you all for the suggestions! The NSF makes much more sense now.
Hi @Cliff Earle
Here are some of my thoughts:
Base 10% sounds good to me on COLLECTED RENTS ONLY. I would never, not in a million years, get into a contract where I would pay someone even if they didn't do their job. If they don't budge on this look elsewhere.
Leases: Both my PM's right now charge a full first month's rent for a new lease, none charge for a lease renewal. At first I thought to myself "What's to stop them from just having turnover all the time?" But the answer is, if this happens then they would be replaced AND THEY KNOW IT. Find out what their average tenancy is for their whole portfolio. IMO, get them to drop the half month for a renewal or find a new PM
Pets: I've seen this before and I thought "Why am I going to have more wear & tear, higher turnover costs, etc just so the PM could pocket more $$?" If you go with them, just let them know you don't want pets unless this can be negotiated...
Eviction: You definitely want to find out what the average eviction costs actually are in that area. Verify from multiple sources aside from the PM company
Setup Fee: Ask them what this fee covers and have them explain to you why this isn't covered in the New lease fee/10% of rent collected fee. From my perspective (though I'm not a PM lol), I would think they should be happy about landing a new contract and there shouldn't be a $200 setup fee. It should be part of the job...
NSF/Late: Maybe someone else can chime in on this. Personally to me I wouldn't mind as long as they are doing their job and I am only paying 10% on actual collected rent.
Utility Fees: This may be a charge for switching over utilities during vacancies? I'm not sure why it is expressed as a percentage. It may be something else. Definitely clarify this with them.
Coordination Fee: This is what the company will charge ON TOP of the cost of any service they perform/contract out. Let's say $100 plumbing repair. The PM company will front the $100 and charge you $110. One of my PM's charge this and the other doesn't. The one that does has over 550 properties she manages and gets discounts on the work she has contracted out (brings these guys lots of work) so it ends up being cheaper anyways. This is what she tells me anyways lol!
Good job picking apart the lease and posting it here. A PM contract is a serious deal and you definitely want to be on top of EVERY aspect of it.
Great points, Mehran -- thank you!!!
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