Are all Property Management terms so unfavorable to owhers?

Question

I am new to REI and using property management companies, but having looked at terms offered by 3 property managers, I see some of the following unfavorable terms:

1. Manager can renew leases without Owner approval

2. Manager has broad discretion over rental amounts, discounts, and payment arrangements

3. Continued management fees for remaining lease terms even after termination

4. 3% to 6% sales commission if the property is sold to a tenant within 3-12 months after termination of property management agreement

5. Manager keeps 100% of late fees and pet rent, etc

6. One-sided Liability Provisions, Legal Protections

7. Cross-collateralization - proceeds from one property can be used against charges from another property being managed for you.

8. Manager has lien rights against the property. ?!!!

Is this common across various states or something seen more in Arkansas?

What are people's thoughts about not using a property manager but working with the tenant to have them schedule repairs as needed, but paid for by the owner?

Any advice is much appreciated!

- Niranjan

Drew Sygit · Answer

@Niranjan P Ghate a desperate owner, is really not much different than a desperate tenant.

What makes an owner, "desperate"?

Running low on funds to make their mortgage payment(s), divorce, lawsuits, etc.

So, PMCs have to take steps to protect themselves. How else can they collect what they are legally owed?

1) This is negotiable, as an owner may want to be notified in case they want the property vacant to sell. Also, owner should have some say in renewal amount.

2) How do YOU have more experience & knowledge than the PMC?

3) So, you want to hire a PMC to manage a property for you, they place a tenant and then you fire them with no repercussions? Easy solution, just have your PMC ONLY do month-to-month leases. Your tenant turnover costs will probably go up though.

4) 3 months is fairly standard. Otherwise, what's to stop a "sneaky" owner from firing their PMC when they tell them the tenant wants to buy the property, then the owner turns around and deals directly with the tenant? All to save paying that 3-6% sales commission.

5) Negotiable

6) They're not one-sided. You hire an attorney to represent you in court - what happens if they lose? They have no liability other than malpractice. Why would you expect this to be different with your PMC?

7) See desperate owner issues.

8) See desperate owner issues.

Suggest you try looking at these issues from a PMC's point of view, to better understand them:)

Amanda Breck · Answer

Property Management terms are often more favorable to the property manager in terms of liability provisions and legal protections. They also usually have broad control of tenant screening and keeping or not renewing tenants. The sales commission is also not unusual. Keeping 100% of the late fees, discretion over discounts and payment arrangements are more than I usually see, however. You can always try to negotiate, but make sure you get any changes in writing, and keep a copy of the final signed management agreement. I worked with a client recently who no longer had a copy of the signed management agreement and was being charged a fee he was certain was not in the agreement, but could not prove.

It may take more leg work than you anticipated, but you should be able to find a property manager with more reasonable terms or who will negotiate with you. Good on you for carefully reading the agreements!

Eric Gerakos · Answer

Yes.

Marc Winter · Answer

Wow, with the list you provided, I can understand your concerns! Many of those items are unilateral (favoring the manager), and are not good business practices, imho.

Remember, any/all of those items on your list may be negotiated. Don't give up hope on getting a good manager--keep looking until you find one that you feel comfortable with, then start negotiating on items you feel are over the top.

Good luck!

Niranjan P Ghate · Answer

@Drew Sygit, Thanks for the reply... As you can probably guess, I am new to this and still learning the ropes. There are a number of things that I had not understood well enough. I am sure I will learn with experience... I just hope that they are not hard lessons.

Thanks for the advice.

Are all Property Management terms so unfavorable to owhers?

Are all Property Management terms so unfavorable to owhers?

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