Best practices for property management fees

[Joe Fish]

For the property managers in the audience... when setting up a property management agreement, what would you consider to be the best way to handle fees that aren't covered in the monthly management fee?

The way I see it is that the monthly fee should cover coordinating routine maintenance (HVAC tuneup or minor maintenance, leaky faucets and drains, sprinklers, minor pest control, etc.), but larger ticket items that may require multiple bids, permits, or otherwise could have reasonably been prevented should be handled separately and charged to the owner. Otherwise, older properties and those with a lot of deferred maintenance will require a lot of attention from a property manager that isn't compensated. 

My question is how do property managers structure their agreements to account for the different types of maintenance that come up. It seems like there's a lot of grey area here. Similarly, do you set an hourly rate for light maintenance performed by the PM? Thanks for insights!

[Drew Sygit]

@Joe Fish maintenance is the most opaque part of PMC services.

Most PMC's charge by the hour for maintenance handled by their internal staff OR they charge owners via their own invoices - which hides the actual costs.

When hiring outside contractors, most PMCs add a markup - that again they often hide by billing owners via their own invoices.

[Spencer Abeyta]

Hello Joe, what a property manager charges is very location-specific. You have to remain competitive when starting out because your goal is to grow your business. It sounds like you are primarily asking about charges to the owner of the property and not the tenant. You want to be transparent. There is nothing that ruins a business relationship quicker than poor communication and unexpected fees.

Some PMs add a flat fee or a percentage on top of maintenance bills. I have seen some that add a flat fee to bills over a certain dollar amount and they call it a project management fee. Personally, I do not believe these fees are in the best interest of the owner and we do not charge mark ups on maintenance. If you have to change a water heater, which now costs around $2000 in Colorado Springs, that is a large unexpected expense that the owner has to pay for. It doesn't feel like adding a mark up to that for sending out a work order to a vendor is beneficial for the owner. Now if this is clearly disclosed, at the end of the day it is your business and you can run it how you choose.

Keep in mind, there is a lot of competition in new PM businesses because of the changing real estate sales market. Many agents have reduced transaction volume and need to supplement income and they decide that property management is the next step. Because they are new to the business, they assume it is a commodity based business and they win business by being the cheapest option. I would recommend becoming an expert on the local laws and the area you service. This allows you to charge more for your service and owners will be willing to pay for expertise.

[Adam Bartomeo]

If the owner is going to buy and sell their properties with us than we don't charge anything for any renovation. If they plan on doing the sales themselves than we charge 10% for any project over $2,500 but we don't charge for simple projects like AC's and roofs. I believe that we are on the lower side at 10% and I don't know of another company that will do it for free like we do. We do have a $25/hr charge for really difficult situations... in 5 years we only charged it during the recovery of hurricane Ian.

[Cameron Tope]

Joe, 

I've been to events and meetups with many different management companies from all across the US and there are very little consistencies on the fee structure. 

The main best practice is transparency. Clients don't like when they think they're getting charged $100/mo per unit then pay a dozen or more in junk fees every time they turn around. 

Be clear about the fee and what you provide for the fee, and you'll be fine.

Best of luck!

[Greg Weik]

Hey @Joe Fish, property management is a lot like insurance. 

When we take on a new door, our fee structure is essentially a guess and a "hedge" against future claims (against our time.)  If you have a lot of doors, any claims you're paying out (again, with your time spent dealing with issues) are generally offset by the premiums you're collecting from doors that don't require any or much attention.

The fee structure should be transparent and easy to understand, and it certainly should be on the PMCs radar to avoid "project management" when possible.  Project management is not property management, but people may define project management differently. Here's my take:

If my company has to get a couple of quotes for a new furnace, that means sending a few emails, packaging the information from the vendors intelligently, and relaying this information to the client in a way that adds value, usually with a recommendation based on experience and context.  Keep the tenants in the loop and set follow-up reminders to see it through. This is not project management. It's just part of what we do.  

On the other hand, if a client hires RES at the tail-end of an existing lease and knows full well that their rental property is falling apart and needs everything from paint, flooring, blinds, other repairs, landscaping, etc., we will not under any circumstances spearhead this project. We ask the client to get it done and come to us when it's ready to go—and only then we will list it and get to work.  

When you're starting out in PM, any door is a door you want - or so you think.  After about 20 years, we've learned to be very selective, both with the door and with the client.  I'll take marginal doors if I like the client, and I will fire clients with beautiful doors if I think they are a PITA to work with or if they suck too much of our time (I will warn them first, and if they don't adhere to the warning, I politely show them the exit.)  

Hope this helps!

[Erin Colander]

Hi Joe,  I see you have quite a few responses already to choose from. My additional two cents...I would highly recommend you work with a local attorney to help draft a management agreement and they can also lean in on this verbiage and structure. Best of Luck to you!