While choosing an affordable property management team is important, the last thing you want to do is choose a property manager based solely on the lowest price. The property management company you choose will steward one of your most valuable assets on your behalf. Make sure you can afford the services you agree to in the contract, but do not forget the importance of the scope and quality of the services provided.
Be wary of pricing that seems too good to be true. The property management industry brings in over $76B a year in revenue (for a reason!). A lower rate could mean the property management team does not offer top-tier service. It could also simply be a strategy the company is using to beat the competition. Even if the latter is true, low rates mean less profit for the property management company. Less profit for your property management team means less resources and poor quality of services for you and your property. For example, a thin bottom line could cause a property management company to overload managers and provide cheap maintenance repairs.
Make sure you understand the potential fees included and excluded from your property management agreement. Once you review those details, make an apples-to-apples comparison between property management companies. Lower fees sound great until you find yourself spending a fortune on additional services that were not included in their baseline pricing.
Luckily for you, all fee agreements are negotiable. Before diving in, try negotiating the most affordable rate possible from the company that is number one on your list.
The Three Most Common Fees
What kind of fees should you expect? The most common and broadest fees are the Property Management Fee, a setup fee, and an optional leasing fee.
The Property Management Fee is a monthly fee that generally includes all or most services. Monthly management fees typically range from 7-10% of collected rent on a property. Some firms adjust the percentage depending on the number of properties or services included. Others will charge a lower percentage but add on fees for additional services. Commercial property management and residential have different expectations, skill-sets, and rates as well
The Set Up fee is very common but not all companies are utilizing it. If they do, you can expect a one time fee ranging from $50 to $300. Something to inquire about is whether they charge per property, per unit, or per client.
A Leasing Fee will relate to costs involved in filling vacancies. Leasing fees usually cost 75-100% of the first month’s rent and are sometimes referred to as ‘placement fees’. These are one time expenses such as advertising the listing, showing the property, screening. When a tenant stays for years, these expenses are not incurred so it is to the owner’s benefit to only be charged for these as they occur.
Here are 3 questions to ask your property management team to understand their fee structure:
1. What services are included in the main property management contract?
2. Do you charge additional leasing fees? If so, how much is the leasing fee?
Most property management companies will charge anywhere from 50% to a full first month’s rent. Some companies charge a flat fee, while others charge based on a percentage of the rental rate.
3. Is your leasing fee structured in a way that rewards finding long-term, reliable tenants?
To incentivize finding long-term tenants, leasing fees can include an agreement for partial or full refund if the tenant is evicted or breaks lease within the first year.
This list of general fees is a great starting point to understand and negotiate with your property management team. In A Comprehensive List of Potential Property Management Fees, we will dive deeper into each service provided – like advertising, maintenance, and late fees.