Are there red flags in PM agreement?

Question

hey guys, I've been talking to a potential PM for my townhouse and he sent me his PM agreement for review.

There are a few things in the agreement I didn't like, but I'm not sure if these are common practice or true RED flags.

Would love to hear your thoughts... What do you think about these?

1. [agreement] shall be for an indefinite term, subject to termination by the Owner. If the Owner wishes to
terminate the agreement during an existing tenancy the owner will be held liable for payment of
management fees for the duration of the existing lease as well as a $300 + GST cancelation
fee. If the tenant was placed by the Manager, and wishes to extend or renew their lease, and
the owner wishes to cancel this agreement to continue on with the existing tenant, there will be
a fee of $800 + GST. The Manager reserves the right to terminate this contract with thirty (30)
days written notice.

2. To collect all rents and other income from the Property and promptly and directly deposit such
rents in XXXX's Pooled Trust Account.

3. Should the Owner require the Manager to make unscheduled visits to the property
(insurance proposes) above and beyond the duties outlined in this Agreement, a fee of $75 +
GST will be charged per visit.

Thoughts?? Thanks in advance.

Scott Trench · Answer

@Niranjan P Ghate You will go through several PMs in a career I believe.

I have.

Today, I use James Synder at Steadfast real estate. Small local company here in Denver. Jim, as he goes by, is a property manager and baseball coach. He handles everything with grace, and when tough issues come up, owns the rare mistake, communicates promptly, and continuously improves. Couldn't ask for more.

Scott Trench · Answer

Here's an ideal PM contract:

The two keys are: The PM is incentivized to make you money, not charge high fees, and is contractually bound to provide reporting that you can understand in a timely manner.

Basically - I want a PM who keeps the property in good shape and occupied to get paid, and a PM who is either bad at maintaining properties and finding good tenants, or just really unlucky, to not get paid.

- PM charges 8% of rent, which escalates to 10% if the property exceeds 95% occupancy with rent collection.

- PM charges minimal fees.

- PM is contractually obligated to perform annual maintenance/inspection to keep property in top shape.

- PM provides a cash based accounting report every month, for every unit under management, that clearly labels all rent, all expenses, including management fees, and the net directly ties to the amount of money deposited into my bank account.

- PM is a licensed handyman, or has them on staff, and takes care of most unit turn work at a reasonable rate.

- PM has no breakup/termination fee

- PM does not take project management fees, except on large or complicated CapEx projects exceeding $5,000.

I'll settle for a variation of this and give a little, but I simply pass on PMs who hand me a term sheet with 10+ different types of fees. And, the breakup fee is a non-starter. I just won't deal with PMs with a breakup fee at all.

I don't like your PMs contract because it is basically "If you bother me with anything that is not in this contract, I'm charging you a fee, in the hopes that you will stop bothering me and go away." A good PM, if you are truly annoying them with ticky tack crap, would simply terminate the relationship with YOU, if you were such a bad a client, not charge you $75 every time you call with a question.

Stephanie Walker · Answer

I find all of this surprising. However, I've been told by plenty of my colleagues that we leave a lot of money on the table. I just don't believe in taking advantage of people. Maybe look for a small boutique PM company like mine.

- PM in Charlotte NC

Chris Seveney · Answer

INDEMNIFICATION  - make sure you read that and understand it. For example if the PM walks up to a tenant and punches them in the face, you defending and indemnifying them (meaning you paying the legal to defend it? you paying the legal if they are operating without a license? In many agreements people do not realize they are...)

Niranjan P Ghate · Answer

@Scott Trench, The PMs you must work with seem to be really good. Can you share some names and contact details? Where do they operate? I am new to REI and I was shocked to see the terms presented by the ones I have seen thus far. They seem to be so unfavorable to the owners!

Are there red flags in PM agreement?

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