Changes in Fees within the Property Management Industry over the years

#1

Always a topic I wish to discuss…

Do we get paid enough $$ to manage an asset that is worth a lot of money. I always do the analogy of the service on a car - a depreciating asset - and the what we get paid to manage a property - an appreciating asset. The cost to service and repair the car is sometimes more than the cost to manage a house or apartment. The difference in value is extraordinarily different (try like 7000% per cent more) or shall we even go down the path of getting the ladies hair coiffed in a year… Yet the amount that we do for a property again is quite disproportionate compared to other professions. At least we have the “counsellor” hat in common with the hairdresser.

I always question why so many in the industry want to cut rates to get business and make a rod for us all to bear.

Whilst going through files last week - the last task to going paperless, I came across a Managing Agency Agreement from 1991 - that is 30 years ago. Shall we hazard a guess at how the rates compare to the market today?

You guessed it - the same as standard % that we see today

In 30 years nothing changed

Or has it - the rent has, therefore the amount that you as an agent has. Rent was $120 per week and is now $450 a week. And there are a couple more fees thrown in.

Is the change in rent good enough to be an increase in fees to cover all the extra costs that go with managing a property.

I am interested in everyone’s thoughts

3 Likes
#2

@louiseschofield we could talk about this forever - part of the issue I see is that our industry is NOT seen as a profession - it is seen as a service. I’ll explain - a profession - Accountant, Solicitor, Financial Planner, Doctor, Dentist etc etc - these people are typically well versed in charging for outcomes instead of just the service.

Jim’s Mowing is a service - Your mechanic is a service - and typically these industries are the ones consumers will judge by price / fees and are more likely to play the game of fee negotiation to pick up the business.

Most businesses have created their fee schedule - simply by looking at what their direct competitors are charging (Wrong!!) What if we as an industry looked at all the products & services that an investor needed / wanted to manage their property - then we set about developing a service that met these needs -

If we as an industry spent more time developing a schedule of services that a LL could NOT find elsewhere, and we offered value above and beyond the basic PM services that most agents offer - then the agency that does do this will become sought after and the Agency of choice.

Agencies tend to get screwed down on fees (in my opinion) in part due to:

1./ they have not been able to set their services apart from their competitors
2./ they have not developed a schedule of solutions to the LL’s needs
3./ they don’t have a really well planned sales strategy to sell the concept of Property management
4./ they are often chasing doors, and will walk away with what the fees that the owner is willing to pay

After attending an LPMA conference - maybe 2011, 2012 I walked away understanding that I first needed to calculate what my benchmark / break even cost was - then add a margin to that - and I introduced ( back in 2011 / 2012) a fixed minimum monthly management fee of $150 (inc GST) for lower priced properties, and then %% for higher priced - but I knew before we went to a listing if we would be % or Fixed -

The next biggest issue - is the poor or NO additional ancillary fees - I see some agencies that there ancillary fees compared to M/F is 7-8% - back at MAP days my ancillary was over 35% -

Finally - it is sometimes hard to get a long term LL to increase their M/F - but it is so easy to add extra products and services to an existing LL

Sorry for the War & Peace response - but this is one of my most favourite topics with Agency Principals - understanding the financial metrics & levers that make up a profitable Rent Roll

2 Likes
#3

Thanks for the great response, it is something I talk about a lot and it is amazing on different forums where I get shouted down and told – the job is not all about the money (realestate.com.au forum)

There is a common “that is what has always been” attitude to fees rather than being innovative and changing with the times. Would be great to see a bit shake up across the board and see more individuality instead of “that is what has always been done - or that is what everyone else does”

Having spent the last 2 years at Deakin Uni and with the subjects I have done, there has been many times that I have felt “this would benefit every Property Manager”. I believe that to become a Professional Property Manager – you should have a uni degree. With that will come a lot more understanding of the tasks at hand – including the finance, contract law, tribunal and strategy. With a Uni Degree – I think we would also get more recognition and be able to set better rates.

But most people don’t want to pay to learn either. They complain about the measly fee they pay for CPD points and the poor quality information and training we get with CPD points is quite astonishing. Even when getting a Real Estate Licence – there is next to no training on Property Management – the real deal that is – what the job is really all about or it next to never touches on Commercial – of which most rural and regional agencies deal with regularly.

1 Like
#4

Great food for thought thanks Louise and Michael.

We too set our Water Level last year and this has led to some interesting negotiations with existing clients, along with a more confident approach to conversations with new business and onboarding new properties.

We’ve found it to be a good exercise to review our portfolio for B and C clients and properties - those that always have maintenance on the go or owners that aren’t prepared to complete maintenance or have unrealistic expectations of their tenants (and agent!). We have “cleansed” our portfolio on a couple of occasions - a bit scary but our Property Managers appreciate it and we quickly replace the properties with properties and clients that are a better fit for our business.

We have the most expensive commission rates in town on the face of it, but when you break down all the extras others are charging, and our level of service, the value is clear.

I agree a clear point of difference is important to secure good clients and important not to get involved in a race to the bottom!

Love the car analogy, we will use that one!

1 Like
#5

Hi Louise,
I have only been in the game for 3 or so years however I’ve had PMs looking after my own properties and for mine, PM wages haven’t been very good for as long as I can remember. That alone has got to have a negative impact on attracting the staff you want to your company. Of course as a natural progression, that leads to many PMs falling away from the game. I don’t believe we (royal we here) have done enough within the PM division of real estate to try and promote the actual occupation itself. It’s almost like PMs are the distant cousins within and so therefore that persona is what is reflected on the outside. PMs need to have their actual abilities and their willingness to go the extra mile better promulgated to the outside world. Salespeople, after all, only play with the client on a short term basis whereas PMs are open to the clients wants and wishes on a daily basis in some cases.

In our company we have set ourselves a goal of not only broadening our PMs knowledge in the core matters of PM but also in areas pertinent to PMing, with a view to them gaining promotion, bonuses, wage increases and most importantly, actually keeping them as PMs.

1 Like
#6

Thanks for the reply. I reflect on today’s webinar about the 4 landlord types when there was the discussion around the mistrust of Properrty Managers. All too often when they are seen as the poor cousins of the sales team, some RE offices enforce this culture by making people start in PM - ie inexperienced and non-commitment as they are eager to move onto Sales and hence the end result is the customer gets a bad experience and the mistrust manifests.

Property Managers have a huge responsibility and swim against the tide to get that recognition.

Interestingly….I am taking over 2 rentals at the moment that have incredibly low fees and I had to work hard to justify a higher fee. The agency counter-offered with a free fee period to get the property sorted out (after bad management) - a prime example of lack of respect in the PM department - let’s offer our staff for free……

1 Like
#7

It’s a big ask but if we all added our own little bit to the mix then the PMs I think, would start to get the recognition they deserve.

I have simple question of people about why our fees are where they are. I ask them what they want us to NOT do for them because that is most certainly happening if they are paying fees that are half of what we charge. As for free fee periods, they can be motivators to get someone to move across to you however they can also be a rope around your neck if that owner turns out to be a little needy which translates into $$$ spent looking after them that doesn’t match $$ in.

#8

This is a topic that I am incredibly passion about and am loving the points in the thread. Here is my further 2 cents worth:

  • During a listing presentation - if you are ever asked to justify your fees ( I reckon) you have either not built the value early enough, or you have not value at all - I thinkin I did a webinar for LPMA on BDM presentations if not then some of the videos are on the Rent Roll Maximiser YouTube channel - build enough value that fees don’t become an issue

  • Instead of Fee Free period - maybe try other incentives such as 12 month’s LL Insurance, or Professional Photos - both are good value to the LL - and can be negotiated with the provider at a reduced rate for a small number each month (say 10 a month at reduced rate) just for the New Business Clients - this shows value again

  • During the listing Presentation - identify what is important to them in their Agent - and then have the Data / Stats/ Documents / Video / Testimonials etc to support their needs

As a simple exercise - firstly pull out your Fee Schedule & Level of Service - most Agencies (that I see) have a 1 pager. I use a 7 page LOS & Fee Schedule and 3 pages in Fees. In the Listing Presentation we use the LOS which bullet point explains the steps that go into a Letting Fee for example - there might be 10-12 bullet points (much easier to justify the fee if you have explained what it covers) - the LL is less likely to question the fee if they can see what the benefit is to them

I recently did an interview with a Director who charges a Monthly Technology Fee - $22.00 - this covers all the software programs that they need to manage the properties well - I was impressed and will add that into my next version of the LOS

Food for thought - keen to hear what others think on achieving fees during a presentation - it is a skill that needs to be practiced and the Agent should already already know the 5-10-15 - 20 objections that the LL will use - and the Agents MUST be prepared with the responses - otherwise if the Landlord CANNOT separate the Agency on Value, Benefits & Services - they WILL SEPARATE you on FEES!!