Questioning a Contract

[Tim Cole]

I am in the process of finding a new management company, and came across a contract referencing "procuring cause". This would allow the management company to collect fees on any tenant that stays in a property that they found until the end of the lease, even if we terminate the contract and I am no longer working with the management company. This would mean that if I moved on to another company I would be paying two management fees at the same time until the lease they procured runs out. Has anyone ever heard of this in residential leasing? They said this is common in commercial leasing, but I have never heard of it pertaining to residential leasing. I would really appreciate any feedback. 

[Nathan Gesner]

You don't have to accept it. What they don't want is that they procure a tenant and then you fire the PM the next month and take over management. They earn their money through the monthly PM fee. However, most managers will mitigate this with a termination fee.

Regardless, you should continue searching for a company that makes sense to you. Be sure to compare multiple companies using all of their fees over a 2-3 year period and see which one works best for you.

Remember: cheaper doesn't mean you'll make more money.

You can start by going to www.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start. Regardless of how you find them, try to interview at least three managers

1. Ask how many units they manage and how much experience they have. If it's a larger organization, feel free to inquire about their different staff qualifications.

2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, but especially if they violate the terms of your agreement.

3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 5% management fee but the extra fees can add up to be more than the other company that charges 10% with no add-on fees. Fees should be clearly stated, easy to understand, and justifiable. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate!

4. Review their lease agreement and addenda. Think of all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.

5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that it is enforced equally and fairly by their entire staff.

6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. The fact they are complaining online might be an indication the property manager dealt with them properly so be sure to ask the manager for their side of the story.

7. Look at their marketing strategy. Are they doing everything they can to expose properties to the widest possible market? Are their listings detailed with good quality photos? Can they prove how long it takes to rent a vacant property?

This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!