Property Mgmt Agreement w/ Sales Commission

[David Beard]

I was curious how many of you have property management agreements where the PM has inserted a clause saying they'll be paid a specified % of the sales price if sold during the term of the agreement. Sounds crazy to me, but I've just encountered this.

[David Beard]

Brandon, the PM charges 10% of rents, and there are no other charges except for maint. work, most of which he handles with his in-house crew at reasonable rates. He does not use realtors to find tenants, so avoids that type of sizable expense.

He'll decrease the mgmt rate by 1% for each 20 units you own, with a floor of 5%.

It sounds appealing because many on this board gripe, with justification (Brian A is coming to mind), that PMs make more money when the unit goes vacant than when it is full. I'm not sure that is true, given the hours and costs expended in the leasing process, but I do like the alignment of incentives for the PM to find high quality tenants as quickly as possible.

It has been argued that investors will seek out such a PM to give them their worst C- to D properties that have the highest turnover. The PM would have to use judgment in assessing each client relationship.