Are you paying a fair price in property management fees?
Getting what seems like a better and more cost-effective offer from a rival property manager is a common trigger for that question.
An essential part of being a savvy investment property owner is assessing the value of the service you’re receiving from a property manager. You want a property manager who charges you an honest, fair and transparent fee. If that’s not the case, then you’ll likely want a better offer. But are property management fees negotiable?
The answer is that you might be able to bargain for a better price, but that doesn’t come without its drawbacks. The alternative is to change to an option that is more transparent and easy for you to work with, such as a flat fee as opposed to a percentage-based fee.
With the help of our property expert Wayde Hildrew, we’ll explain how you can determine if you have fair grounds to negotiate your property management fees. You’ll learn what you should look out for and how to approach a property management fee negotiation, and we’ll explain why we think a fixed, flat fee is the solution you should be looking for.
Are property management fees negotiable?
Yes and no. You might be able to negotiate your property management fees, but it depends. How can you tell if you have a good reason to approach a negotiation with your property manager? And how do you know if you should negotiate your property management fees?
You need to define what a fair price is for you
First, let us clarify one thing: When talking about negotiating property management fees, we don’t mean ‘haggling’!
This might surprise you, but your goal when negotiating your property management fees is not necessarily to get the cheapest price possible. Rather, you want a property management fee that is simple to understand, transparent and fair according to the service level you desire.
You want a property management fee that is simple to understand, transparent and fair, not necessarily the cheapest.
There is often a strong correlation between what you pay for and what you get. The key is to check whether this statement holds true for you and your property manager!
Be critical of the fee structure you currently have
If your property manager charges percentage-based property management fees with extras and add-ons like inspection fees and tribunal fees, then you can have a chat with them and ask why they charge you separately for those extra services, and where the value is in that for you.
This should be an easy question for them to answer. If that isn’t the case, and a competitor is offering the same service without charging extra for it, you have a good reason to ask for a reduction or removal of the fees in question, or change your property manager.
“If they can’t prove the value in what they charge, will they be able to find tenants for you? Agents should know what they need to charge, and normally there shouldn’t even need to be a negotiation.”
Ultimately, you need to decide your priorities when choosing a real estate manager. Understand what level of service you need and what you need financially for your investment properties. Compare offers from a range of property managers and decide what a fair price is for you.
You can leverage your portfolio for a reduction in fees
It’s also worth noting that if you have an investment property portfolio that consists of multiple properties, then you’ll find that property managers who charge percentage-based fees will often give you a special offer to encourage you to bring your entire portfolio to them.
If you, for example, have two investment properties and you pay the same percentage in property management fees as if you had one investment property, then this is something that you can leverage for a reduction in the dollar amount you’re paying.
This only adds another layer of complexity, as it can be even harder to evaluate whether you’re paying a fair amount in property management fees when your portfolio is large.
Should you negotiate your property management fees?
You need to be aware that negotiating for a reduction in property management fees does come with disadvantages. It’s highly likely that you will take a hit in service level by doing so, unless you and your property manager specifically agree that this is not the case.
“Agents who are able to negotiate their fees typically expect that form or risk and return. To lower their fees they might have to change their service model by cutting costs or by not being as proactive when managing your investment property.
Also, if an agent is able to drop their fees really quickly, especially before they’ve worked with you, that’s not a good sign of their negotiation skills, which reflects in the work they will do for you.”
Be aware of those risks when you’re considering negotiating your property management fees. If that’s something you’re completely fine with, you can go ahead and approach a negotiation!
How do you negotiate property management fees?
Negotiating for a change in your property management fee structure might not come naturally to you. A lot of the time it’s easier to do the negotiation in writing.
“You can definitely pop an email through, querying their property management fee structure, asking them to justify those fees and ask if they can remove them or get an alternative fee structure.”
You should make it clear that cost is a major part of your decision-making process for property managers. It’s one of the factors that play into your property manager choice, so they should understand that you want them to put their best foot forward.
In fact, 42% of the 3000 investment property owners we spoke to quoted “cost/value for money” as their biggest pain point. That’s why it should come as no surprise to your property manager that you’re looking for a fair and transparent fee!
The Alternative: A Fixed, Flat Property Management Fee
Percentage-based fees can be turbulent, confusing and difficult to work with - and you might not be comfortable negotiating property management fees either. That’s why we recommend that investment property owners should look for property managers who offer a flat, all-inclusive fee that is fixed.
“A fixed fee means exactly that. It’s fixed and there’s no negotiation there, and it’s based on what the company knows it costs to manage that property.”
Flat fees are much simpler and more transparent. They remove the need for you to do in-depth analysis about various add ons and hidden extras.
This rules out the possibility for negotiation, which isn’t necessarily a bad thing. It just means that the property manager is upfront about what it costs to manage an investment property with their service model!
Flat fees also make more sense than percentage-based property management fees that charge you according to how much rent you collect. Why? Wayde explains below:
“There is no reason why a client should pay more according to the value of their property. It doesn’t cost twice the amount to manage a $400 per week property as opposed to a $200 property.”
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