Good Fees Vs Bad Fees For Property Managers

[Scott Trench]

I'd like to get some input on reasonable vs unreasonable fees for property management. 

I think most people think that the % of rent is the key fee. I disagree. 

I interviewed a property manager a while back who headlined their fee structure with an 8% of rents fee. But, then had: 

- Late fee splits

- Pet fee splits / collected by PM

- Leasing fee of 50% for new tenant

- Renewal fee

- Service fee for work done on the property

- Higher fees for certain tenant conditions

- Receives all interest on trust accounts

- Full page of admin fees including resident liability program, benefit package, pet initiation fee, credit reporting fee, tenant lease renewal fee (in addition to renewal fee charged to landlord), lease draft fee, application fee, utility concierage service fee, legal notice service fee. NSF fee, electronic payment fee. 

- $85 per hour fee for broker's time. 

- Document fee of $50. 

- Eviction fees

- Various fees for advertising the property

- Various rights to broker commission if I sell the property. $1,000 fee if I don't use them to sell the property. 

- Termination fees equal to 15% of all rents received. 

- Etc. Etc. 

In my view, this is WAY worse than a 10% of rents collected fee. Now, the headline of % of rents, vs the huge number of ticky tack fees doesn't really matter in the end if the PM is good and runs a tight ship, keeping my property well maintained and occupied. But, I believe that a fee structure like this is way worse than something simple like: 

"Good" Property Manager Fees:

- 10% of rents

- 50% or $500 lease-up fee

- 25% or $250 lease renewal fee

- 10% GC charge on projects over $1,000 (guarantees they will get 2-3 quotes on jobs of this size).

- $500 - $1,000 flat rate breakup fee, payable only in year 1.

This very simple, but higher headline, fee structure better aligns incentives. The property manager gets a tenant and keeps the place occupied. They get paid. They don't have an incentive or fee to enable them to blow me off, do unnecessary work, or otherwise nickel and dime me or the tenant. 

They can't trap me in the contract. They don't have any rights to help me sell my property. And, they can't blow me off or charge me $65 if I need to talk to them about an issue. 

What do you think? I'd love views on this from landlords and PMs. 

[Tim Baldwin]

These kinds of fees are increasingly common in Florida. Truth be known, there is little profit in the property management business. Businesses that only charge, say, 8-10% on rent and that don't charge ancillary or per-occasion fees are not making any money on the landlord's property, unless of course they are not hiring any staff to provide full service, in which case, I would stay clear. 

Costs of business has increased dramatically over the past 20 years and liability has increased notably. In Florida, you have to be a licensed RE broker to manage property for property owners, which adds thousands of dollars a year just to stay licensed: state required license fees, CE, insurance, Realtor dues, listing memberships, public-access office, etc.

Additionally, property owners expect much more from PM's than in past years. They want stellar performance on:

1) listing, 2) screening, 3) leasing, 4) inspections, 5) maintenance, 6) lease enforcement, 7) communication, 8) liability mitigation, 9) tenant management, 10) market trends, 11) technology, 12) move-in / move-out process, 13) handling/disposing of tenant property, 14) resolving disputes, 15) vendor relationship and management, etc. 

Thus, the cost of doing business requires and demands that the PM company charge more and various fees just to stay in business--never mind making healthy profit. 

I would add lastly, if you find a PM company that only charges a low commission on rent with no other fees, beware. I know of some (large) PM companies in Florida, and they do a horrible job. Property owners won't know that going into it, but they are lured in by low fees.

The old saying is true: you get what you pay for, not to say that all PM companies that charge "high" will do a good job, but I feel confident in saying that if you are paying very little for services, you will get very little in return.

Best wishes!