Whenever the opportunity passes our way to bring on multiple properties to manage, the temptation is strong for us to discount on our management fees.
But is it worth it in the end?
By Karen Herbert – Property Management Rescue
Negotiating fees – The scenario:
In an unexpected call, a potential client asked to speak to someone about taking on six new managements. Now any BDM would have been salivating at the thought of earning all that commission; however, experience had proven that when properties wanted to walk in the door, there was usually a dark history lurking in the background.
The client then proceeded to patch her partner into the teleconference and there the interrogation began.
In all my time in property management, I have never been subjected to so many grilling questions. After a whirlwind two-hour phone call enquiring about our services and systems, we finally moved on to the FEE section.
My jaw dropped after hearing: ‘My previous agency managed my properties for 5% – including GST’!
Clearly, they were tough negotiators, but having faced similar clients many times before (multiple owners who are used to our industry cutting fees), I was prepared to go into battle!
After another gruelling hour on the phone, we finally agreed upon 7.7% inclusive (excepting letting fee and court appearance).
By this stage, I was feeling chuffed with myself believing I’d achieved a good deal for the company.
You guessed it – I was wrong!
The old adage: ‘Everything comes at a price’ is relevant here.
A red flag I should have paid attention to was the fact that they gave only 24 hours’ notice to the previous agent!
In any case, the following day, after dutifully collecting all keys, files etc., the realisation set in concerning what we had inherited.
The list was long and by no means distinguished.
What came next:
- The owners were used to getting their property manager to agree to adding a two-page addendum to every lease! (CONTRACTING OUT OF THE ACT.)
- They were to eyeball every application so they could do their own checks.
- We inherited two outstanding vacates with bond issues. And yes, the clients were trying to blame the tenant for what we call ‘FAIR WEAR AND TEAR” and continued to try to get the tenant to pay for all repairs.
- We also inherited a vacant property that had sat vacant for four weeks.
- Clearly, we were already alerted to the previous vacate issues, and determined not to allow the same thing to happen. So, having taken three hours to complete an entry condition report, we then presented it to the owner for signing off prior to handing over to the tenant.
- We then discovered they wanted everything fixed (that they could not get the previous tenant to pay for) prior to the new tenant moving in.
- The phone calls from the new Lessors did not stop for weeks and revolved around outstanding maintenance, tenancy issues, property issues and the like.
- The property manager spent nearly four hours per day in the first three weeks attempting to get a handle on what she had inherited.
- A long list of emails from tenants and the previous agent provided interesting reading, but only added to the long list of tasks we already had to attend to.
- An exhausted, and almost burnt-out Property Manager, hung in there but only due to her commitment and experience. Most others would have thrown in the towel and I suspect that is exactly what happened to their previous property managers.
So, I ask you: is it worth it?
Having worked out the hourly ‘Charge Out Fee’ for the time spent to date on bedding in these new six properties compared to the management commission earned so far, I can tell you that we are far in the red, with loads more work still to be done.
The question then needs to be raised: should we have a checklist for clients to complete prior to taking on their management?
The answer, I believe, is yes – and it would read something like this:
New management checklist before taking on a new management
- How much input would you like to have in the day-to-day management of your property/ies?
- What are your expectations relating to our property management services?
- What are your goals for your investment property/ies? Keep and hold, sell, superannuation/retirement, demolish and develop?
- How much do you budget for repairs and maintenance each year?
- How much do you budget for improvements each year?
- Are all tenants on Fixed Term Leases?
- Are the tenants up to date in their rent?
- Are there any outstanding bond issues to be resolved?
- Is there outstanding maintenance to be done at the property?
- How many routine inspections do you expect us to do each year?
- Do you do your own maintenance?
- Do you use your own Contractors?
- Do you have Landlord Protection Insurance?
I am sure that if we, as an industry, asked all Lessors to compete this form in the first instance, then we might re-think our offer of a reduced management fee. Perhaps we might even question whether to manage the property at all…
Karen Herbert is a leading Australian authority on running a dynamic and profitable property management business.