Property Management Fees--from % to a flat fee per unit?

[Elizabeth Guarnieri]

Hi--just learned that my property manager has completely changed its fee structure.  Instead of a percentage based on rental income it's gone to a flat fee per unit.  If I owned more expensive properties, this would be beneficial--but instead my fees are going up considerably for not a significant increase in service as far as I can tell.  Even with a discount offered because of my longstanding relationship with the company, the fees for one of the buildings is going from 8 to 10% and if they were charging the new actual fee without a discount, it would be over 16%.  I've also been told that they can't even guarantee this discounted rate for any amount of time.  

Frustrating to say the least, as there isn't a great margin on any of the properties.  Is anyone else seeing this with their property managers?  They claim that the flat fee per unit model is the new trend so I'm wondering what other people are experiencing.  

Thanks for your thoughts!

[Nathan Gesner]

@Elizabeth Guarnieri your property manager probably realized how much money they were losing on your rentals.

Let's say the PM fee is 10% of rent income collected. On a $1,000 rental it's $100 a month. On a $500 rental it's only $50.

But guess which one takes more work? The $500 rental! Lower income properties tend to have more late payments, more bounced checks, more lease violations, more complaints about noise, parking, domestic violence, etc., and they have a higher turnover rate. I crunched the numbers many years ago. At the time I had just over 200 units. What I discovered is that the 50 lowest-priced properties were producing 15% of my income but almost 50% of my work. That means I could have dumped those properties and reduced my workload to half what it was with only a 15% cut in pay! If you really look at the numbers, these properties were actually costing me money. We gave the owner the option of finding another property manager or paying us a minimum management fee. They opted to stay with us and I'm making almost double what I made before but still not as much as I would with a single-family home.

Your manager probably discovered the same thing. Your properties are eating up more of their time than properties that produce 50% - 100% more income so it's a losing proposition for them. By switching to a minimum flat fee, they can at least try to avoid losing money.

By the way, I assume you have a written management agreement. That agreement can't be changed without your express approval in writing. The management agreement should full disclose any/all fees charged to you. Did they just notify you of the change or did they ask you to sign a new agreement?