Pricing is broken down into two categories and is based on the location, property condition, and services requested.
Finder's Fee |
Management Fee |
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The "finder's fee" is a percentage (usually 8.33) of the gross rent to be collected during the initial lease term and any renewals. This finder's fee covers the cost of things like photography, finding & vetting tenants, and signing legal documents. This fee is also due for renewals to encourage great, long term tenants up front.
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The "management fee" is 12% of the rent collected each occupied month (nothing due if vacant). This management fee covers your specific management needs such as accounting, contractor coordinating, and 24/7 emergency contact.
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Property Management FAQs: Pricing
Q: How can I get the lowest possible management fee?
A: The largest factor you can control is the condition of your house. Management fees go up if managers feel a property is going to create a lot of headaches. If there lots of issues or looming upgrades / renovations, a manager can expect more maintenance calls and contractor coordination which will bump up the minimum % that will make managing the unit worthwhile. On the other hand, if a property is in great shape and requires little to no noticeable work, an agent will manager for less money. Other way to lower the management fee might be out of your control such as property age, number of units being managed, and proximity to manager's home base.
A: The largest factor you can control is the condition of your house. Management fees go up if managers feel a property is going to create a lot of headaches. If there lots of issues or looming upgrades / renovations, a manager can expect more maintenance calls and contractor coordination which will bump up the minimum % that will make managing the unit worthwhile. On the other hand, if a property is in great shape and requires little to no noticeable work, an agent will manager for less money. Other way to lower the management fee might be out of your control such as property age, number of units being managed, and proximity to manager's home base.
Q: Why am I being charged yearly for a finder's fee even if my agent isn't finding a new tenant?
A: It is dubious if your management company gets paid more per year when your unit is turned over than if it's rented for multiple years with the same tenant. The #1 loss of income for landlords is vacancy so turnover is bad for owners. Management companies that only require one up-front finder's fee, no matter how long the tenant stays, have a perverse incentive to get your property back on the market as soon as possible. This is even more troublesome if they also manage your property since then it's possible for your manager to create a bad experience for the tenant they've already received a finder's fee on, encouraging them to leave sooner than they otherwise might, so the manager can get another finder's fee from a new tenant. Even if there is no vacancy between tenants (unlikely), properties that are turned over more often usually have more wear and tear and increase the risk of having a bad tenant move in who does serious damage or requires eviction.
This guaranteed year 2+ finder's fee is your investment in making sure a good, long-term tenant is leased from the start so you don't have to go through the re-renting process too frequently. As a landlord with a long-term tenant, there is no gap whatsoever in rental income when tenants renew. For your manager, this structure provides inherent motivation to find the best, most qualified tenant to live at your property from the very beginning. The longer your initial tenant stays, the more profit both owner and manager make. The owner has no loss of income, repair / reno costs, uncertainty of new tenants, utility bills during vacancy, etc. The agent has the highest motivation from day one on to get a great tenant who stays as long as possible.
Still not seeing the benefit of a lease based finder's fee? Let's put it to numbers. Say you're an owner choosing between two property managers:
Agent A charges 8.33% Finder's Fee yearly based on lease length, which seems more expensive.
Agent B charges 8.33% Finder's Fee only on years when Agent B must find a new tenant, which seems like a better deal.
Both agents charge 10% Property Management Fee only when the property is leased.
Now consider the following scenario:
Agent A leases your property and keeps the first tenant for 5 years. This is an ideal scenario for both agent and landlord.
Agent B leases your property, but each year the tenant leaves and Agent B finds a new one. He does an excellent job, and there's an average of only 2 weeks vacancy at the property each year.
Here's the breakdown of what each party will make in this scenario:
A: It is dubious if your management company gets paid more per year when your unit is turned over than if it's rented for multiple years with the same tenant. The #1 loss of income for landlords is vacancy so turnover is bad for owners. Management companies that only require one up-front finder's fee, no matter how long the tenant stays, have a perverse incentive to get your property back on the market as soon as possible. This is even more troublesome if they also manage your property since then it's possible for your manager to create a bad experience for the tenant they've already received a finder's fee on, encouraging them to leave sooner than they otherwise might, so the manager can get another finder's fee from a new tenant. Even if there is no vacancy between tenants (unlikely), properties that are turned over more often usually have more wear and tear and increase the risk of having a bad tenant move in who does serious damage or requires eviction.
This guaranteed year 2+ finder's fee is your investment in making sure a good, long-term tenant is leased from the start so you don't have to go through the re-renting process too frequently. As a landlord with a long-term tenant, there is no gap whatsoever in rental income when tenants renew. For your manager, this structure provides inherent motivation to find the best, most qualified tenant to live at your property from the very beginning. The longer your initial tenant stays, the more profit both owner and manager make. The owner has no loss of income, repair / reno costs, uncertainty of new tenants, utility bills during vacancy, etc. The agent has the highest motivation from day one on to get a great tenant who stays as long as possible.
Still not seeing the benefit of a lease based finder's fee? Let's put it to numbers. Say you're an owner choosing between two property managers:
Agent A charges 8.33% Finder's Fee yearly based on lease length, which seems more expensive.
Agent B charges 8.33% Finder's Fee only on years when Agent B must find a new tenant, which seems like a better deal.
Both agents charge 10% Property Management Fee only when the property is leased.
Now consider the following scenario:
Agent A leases your property and keeps the first tenant for 5 years. This is an ideal scenario for both agent and landlord.
Agent B leases your property, but each year the tenant leaves and Agent B finds a new one. He does an excellent job, and there's an average of only 2 weeks vacancy at the property each year.
Here's the breakdown of what each party will make in this scenario:
Agent B makes slightly less than Agent A over 5 years while Landlord B makes a good bit less than Landlord A. In the above scenario, Agent B is doing an excellent job of filling vacancies but not retaining tenants. That turnover is bad for the owner, so let's say Agent B does a perfect job for the owner and keeps the same tenant for five years. Instead of gaining money for doing a better job, Agent B just lost $4,000 and is now grossing only $1,791.50 over the course of 5 years. Agent B's incentive is for more turnover.
The agents only lose $100 per vacant month. Agent B loses $1,000 per year if he doesn't list the property. It would take 10 months of vacancy in between tenants for Agent B to find it more advantageous to retain the current tenant. Meanwhile, Agent A is always trying to keep the best tenants because Agent A always loses out any time the property is vacant. Not to mention even just two weeks per year of vacancy, after 5 years, has likely pushed your move-in date out of the ideal range thereby decreasing the potential tenant pool.
I always structure my commission on a lease-based finder's fee because I always want my goals aligned with that of the my clients. For this reason, I don't accept listing contracts that do not continue to pay finder's fees throughout the duration of any tenant's lease term, whether they're new or not.
The agents only lose $100 per vacant month. Agent B loses $1,000 per year if he doesn't list the property. It would take 10 months of vacancy in between tenants for Agent B to find it more advantageous to retain the current tenant. Meanwhile, Agent A is always trying to keep the best tenants because Agent A always loses out any time the property is vacant. Not to mention even just two weeks per year of vacancy, after 5 years, has likely pushed your move-in date out of the ideal range thereby decreasing the potential tenant pool.
I always structure my commission on a lease-based finder's fee because I always want my goals aligned with that of the my clients. For this reason, I don't accept listing contracts that do not continue to pay finder's fees throughout the duration of any tenant's lease term, whether they're new or not.
View the full Property Management FAQ section here. (coming soon)
Rental management services are offered by Dave Fleming, a licensed Realtor in PA #RS300174 through Right Move Realty, LLC's Property Management division #RB068247 as broker. Reach Rental Manager Dave Fleming at 717-559-2787. Contact Property Management Broker at 717-243-6683.
