Typical property management contract terms?

Question

Can someone provide the typical terms of a property management agreement for a long term rental?  We have always taken care of the property management ourselves but now are buying out of state and need to hire a PM.  Are these agreements typically based on a % of rent or are there opportunities to structure an ad hoc model where you pay for the services you use?  I am thinking that I want to maintain the tenant marketing, tenant screening and rent collections and would need a PM firm to do ad hoc items like engage maintenance folks if there is an issue with the property.  Any help you can provide would be greatly appreciated!

Drew Sygit · Answer

There are 3 main categories of Property Management fees:

>Monthly Management

• Percent of collected rents – if no rent collected neither owner nor PMC paid.
• Flat rate – appears to be lower than percent of collected rent, but often charged whether property vacant or occupied.

>Tenant Procurement/Placement – could be percent of monthly rent or a flat fee

• Pictures, 3D Tours, etc
• Advertising prep and determining market rent
• Property advertising
• Answering inquiries (phone/text/emails/etc)
• Scheduling showings
• Showings
• Application processing
• Lease signings and MoveIns
• Following up on all of the above, hopefully consistently updating owners

>Maintenance Charges

Common: owner agrees in contract that PMC can perform work without owner approval up to a certain threshold (Example $500) or in an emergency.
Questionable: owner doesn’t find out about charges below threshold until they get their monthly statement.Hourly – PMC bills at hourly rate depending on type of ServiceTech sent

• EXAMPLE: Owner billed at $65/hour for handyman workMarkup is hidden in that rate as highly unlikely PMC is paying their handyman the whole $65/hour.

PMC or a subsidiary billing – PMC submits bill from their company

• EXAMPLE: Owner receives a bill for licensed HVAC work on PMC form.Owner does not get the licensed mechanical contractor bill, so has no idea of PMC hidden markup

Transparent – original bills from all contractors sent to owner, PMC charges a pre-approved markup for their time to handle.

• EXAMPLE: Owner receives a bill for licensed HVAC work on contractor’s form.
Only challenge is some PMC’s get illegal kickbacks from contractors owners don’t see

There are then many different IF -> THEN fees to cover evictions, emergencies, filing insurance claims, etc.

WARNING: never assume you won’t be charged for something unless it states so in the management contract! Not uncommon for a PMC to entice an owner into signing with them with apparent low or no fees – only to charge owners for fees not mentioned in the contract and try to pass them off as “normal industry fees.”