Property Management - Contract and Fee Structure

[Aus Smith]

Hey All, 

I am a CPA who works directly with Property Managers. I have worked full time as an accountant for a property manager for the last six months. I am looking for information for contracts between owners and property Managers. I am looking for information for common clauses used by property managers. I am also looking for information regarding fee structures, and what item's that should be and should not be included in the management fee calculation. 

If anyone has information directly on the following questions, I would appreciate any information. 

1. Should the management fee be collected on rent charges applicable to utility reimbursement, and/or the the rent charges to account for utilities directly baked in, and included in rent? I know this may be company specific, but is there an industry standard?

2. Is it industry standard to use Passthrough's, as the fee's collected for certain item's are simply collected by the management company, then paid directly to the property management company, making the transactions net to zero for presentation? You could report the income, and the management fee, but the net amount reported would be the same, and only presentation of the profit and loss would change. This seems more of a preference item on reporting, but I wanted to get more insight on how these transactions are structured. 

Any internet resources and books that go in depth on these concepts would be very helpful! 

I usually hang out in the tax section, but I'm really interested in gaining more knowledge on the industry of property management. Thanks in advance to anyone that can help! 

If this is in the wrong board, please let me know! 

Austin L. Smith, CPA

[Drew Sygit]

@Aus Smith have your company join NARPM, where you will have access to more PMCs for info.

1) Company specific. If it's not included in the rent, many companies charge a flat fee to monitor & pay utilities.

2) Assuming you're referring to resident benefit packages, renters insurance, and other charges for services the PMC offers to tenants. It is usually dependent on the PM software used. Many, make it difficult to not show pass-thrus on Owner Statements. 

[Adam Bartomeo]

1. We are not allowed to say if there is an industry standard as this could be viewed as collusion. NAR just went through a huge lawsuit over this. Some companies charge and some do not. We make it simple, if the owner is making money than we are making money but if the owner is not making money than we are not making money.

2. I consider myself to be fairly educated but I have no clue what you are asking.

[Aus Smith]

Thank you! 

[Aus Smith]

Quote from @Adam Bartomeo:

1. We are not allowed to say if there is an industry standard as this could be viewed as collusion. 

Thank you so much for the information!. 

To be clear, I am not looking for this information for my work. I have a side business doing tax returns for real estate investors and property managers. This information is purely education to help me understand the income section of a property management profit and loss. I want to understand all fee structures to assist in the income reporting analysis. I only was asking for a standard to see if there was a common structure that I would probably prioritize learning over the other. 

I have considered doing the CPE for property managers under NARPM, even though I have no intentions of becoming a property manager.

Would that be a good idea to help wrap my head around the various fee structures? 

Also, do you reconcile your management income to check to see your charging what is stated in your management agreement? 

Again, thanks for the information.

[Adam Bartomeo]

We audit several different areas a couple of times a year but we have a pretty tight system in place. So, auditing what we are charging our owners rarely has an issue.

[Melanie Thomas]

Hi there! A great resource to explore would be the NARPM accounting standards.

[Justin R.]

Quote from @Adam Bartomeo:

1. We are not allowed to say if there is an industry standard as this could be viewed as collusion. NAR just went through a huge lawsuit over this. Some companies charge and some do not. We make it simple, if the owner is making money than we are making money but if the owner is not making money than we are not making money.

2. I consider myself to be fairly educated but I have no clue what you are asking.

 Out of curisosity, are you considering utility reimbursement portion as "Owner making money?"

[Adam Bartomeo]

Quote from @Justin R.:

Quote from @Adam Bartomeo:

1. We are not allowed to say if there is an industry standard as this could be viewed as collusion. NAR just went through a huge lawsuit over this. Some companies charge and some do not. We make it simple, if the owner is making money than we are making money but if the owner is not making money than we are not making money.

2. I consider myself to be fairly educated but I have no clue what you are asking.

 Out of curisosity, are you considering utility reimbursement portion as "Owner making money?"

 Only when the owners has to pay the utilities because the units are not separately metered. We charge a water or electricity fee.

[Arvand Sabetian]

Any fees collected by the property manager should be a separate charge and not deducted from rent. Rent should be a standalone line item.

With regards to fees, these will vary from property manager--flat fees, % of rent, and other structures depending on short/long-term rentals, unit type and location.

1) I'd recommend utilities be separate. Some owners like to include that in rent so it's case by case basis. This should be defined in the lease agreement as to how it's covered (by the tenant or landlord) and how they're switched over when turnover occurs.

2) Not sure if I'm understanding correctly, but any fees paid to the property manager should be separate. 

[Chris Grenzig]

@Aus Smith if there is base rent and then an extra fee the resident pays for a common utility, we count that as revenue towards a percentage-based management fee. 

I think I understand what you mean by pass through's and that's probably company-specific. I can't really think of any off the top of my head besides utilities, but if you have specific examples I can try and comment more on it.