Fair rate and fee increases from your PM

[Brandon Sowers]

My PM firm is located in NC and we manage just over 800 doors. Our management fees have gone basically untouched for the better part of 10 years. Our firm has a very simple fee structure that includes 8-10% of RENT COLLECTED and a set-up fee at signing of $125. That's it. Nothing on top of maintenance, no leasing or renewal fee, and no fee for inspections. We do, however, have 1 maintenance tech that owners can use at a rate of $40 per hr plus materials. Below is a list of services provided that are currently covered by our monthly commission:

Tenant Application & Screening

Rent Collection

Evictions Including Court Fillings and Appearance 

ACH Owner Payments

Monthly Statements

Property Marketing

Move In / Move Out Photo Documentations and Reports

Maintenance Coordination

24/7 Emergency Call Center

Access To Preferred Vendor Pricing

Lease Renewals

Online Tenant & Owner Portals

Online Rent Payments For Tenants 

Online Maintenance Request

Financial Reporting

While we have continued to grow our doors, this also requires us to grow our staff. It has become apparent to me that we need to find new revenue aside from simply adding to our doors. I would like to know how the BP investors/property owners feel about fees outside of the monthly commission rate. I would appreciate any feedback or positive/negative experience you have had with the following fees: 

-Leasing Fees: PMs work harder to secure a tenant than any other time during the tenancy but receive the same commission rate after a unit is rented without this fee. Also, during this time, you are in essence "working for free" while you show the unit, run apps, keep an eye on the property, and sign the new lease. 

-Lease Renewal Fee: While the renewal is not has much work as the initial lease up, still there is some chasing to do which includes letters to tenants, new lease sent out, and possible inspection of the property. Without keeping renewals up to date, the owner has a big liability hanging over their head since a tenant could move at any point once the lease goes month-to-month. 

-Annual Property Inspection: A full interior/exterior inspection of the property. This is to ensure there are no ongoing, unreported maintenance items that could be causing damage to the property and/or the general condition the current tenants are keeping it in. These inspections also help us to confirm there are no unwanted pets or occupants living in the property. This inspection also comes with a full report with photos sent to the owner electronically. 

-Vacancy Turnover Oversight Fee: Owners typically want a PM to manage the unit turnover in between tenants. This includes move out inspections, managing utilities, getting quotes on work needed, and scheduling vendors. During this time, the PM is not able to collect a fee if the contract is based solely on a percent of rent collected. Similar to the lease up, the PM is working for free.  

I know I have not listed the proposed amount of these fees but the point of this post is to gauge initial reaction to additional fees on top of a monthly commission rate. I also understand that every dollar counts for property owners bottom line. However, the reason an owner hires a PM in the first place is do those things which they do not want to bother with. These things take resources on the part of the PM and resources cost money.                                   

[Andrew S.]

Obviously, your local situation is what matters most.  I happen to know that in Burlington, other PMs also do not charge lease up fees, so if you were to implement one, then that would put you at an immediate disadvantage.  Also consider that adding a full month lease up fee will potentially more than double the  cost for your landlords (unless you are fortunate enough to find tenants who stay for a long time).  That said, in MY neck of the woods a lease up fee is pretty standard (though often 1/2 month).

I would consider many of the other fees you listed as “gimmicks” - seems like those activities should be covered by your 8-10%.

Personally, I have always considered a PM maintaining “in house maintenance staff” a problem.  At a minimum, it creates conflict of interest.  My direct experience with that lasted exactly one turnover - quality of work was low, price was high because of overhead.  Yet, I was going to be stuck using the same crew again and again.  I fired that company after 2 months and will not ever hire another PM with in house maintenance staff. 

Rather than increasing revenue, you could consider streamlining expenses.  What have you done to reduce your operating cost?  Are all your processes as streamlined as they could be?  In your OP, you suggest that you have not increased any fees for many years.  However, since the fees are tied to rents, your revenues have likely increased significantly over time (and will continue to increase as your market is about to explode because of all the growth driven by people flocking to RTP).