Negotiating fees for multiple properties, does it really pay off?

Karen Herbert cropped

An article by Karen Herbert

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?

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

Property Management Rescue

Days on Market - Leverage Yours for Higher Fees

Lisa Pentland Headshot sandstone

An article by Lisa Pentland

This is a term that has been widely used in the real estate sales market for years. More recently, largely due to new technology and digitally generated landlord investor reports, the term is being used in the property management industry.

When fully understood and exploited, measuring and understanding the implications of your days on market will give you a huge competitive advantage from pitching for new business and negotiating a higher management fee to tenant retention and a higher customer satisfaction rate.

Customers are far better educated than ever before and with the deluge of content marketing, they’re becoming more sophisticated every day.

Don’t get left behind and don’t let your clients be better educated on all things property investment than you! Not if you want the big bucks!!! It stands to reason that if you’re going to be paid well to do a job you should have greater “knowledge and ability” than your customer.

So how can you leverage your days on market?

First of all what gets measured gets done, so the 2 things you must know are:

  1. Your agencies days on market total and for each of the suburbs you operate in
  2. The average days on market for each of the suburbs you operate in

You’ve all heard the saying “time is money” well please see a working example below;

Estimated rent for Mr & Mrs Jones property - $500 / week or $71.43 / day.

Your agencies days on market – 12 days

The average days on market for the suburb – 21 days

Your prospective landlord is likely to be $642.87 better off just by listing their property with you rather than your competitors.

Even if they pay an extra 2% commission for a year 7% rather than 5%, they are still $122.87 better off! There’s a win win situation for you and your client.

So this is all well and good if your days on market are lower than your competitors but what if they aren’t?

Well, this is why they’re called key performance indicators. If your days on market are higher than the average, then you have some procedural reviews and some improvements to carry out. On the flip side if you’re not better than the average, your clients are disadvantaged by listing with you.

There must be a reason why your agency is taking longer to lease properties than other agencies, the great news is these are all fixable. Here’s a trouble shooting guide:

Problem

Fix

Overpricing new properties to market

Educate your prospective landlords prior to them coming to market. Set up a template for a weekly update on what’s been leased, what’s come to market, price adjustments and the average trending days on market. Is it stable, going up or down?

Failing to communicate and educate your landlords adequately for them to review their pricing

Implement a “Weekly Landlord Communication Schedule for Advertised Properties” This includes daily communications via text and email, but must include 1 comprehensive weekly activity report (a template including statistics will be most effective) and at least 2 phone calls seeking instructions.
Failing to proactively identify a falling market and chasing it down Monitoring the number of inquiries, attendees, applications, quality applications and days on market weekly, will allow you to have pro-active conversations with landlords and prospective landlords so they can quickly make the best decisions for their situation.

Knowing your days on market, having the ability to read and successfully interpret them for your landlords is a sure sign of your professionalism, identifying you as an industry expert with both the ability and the knowledge to get the best outcome for your clients.

Income & Expenditure Reports

Lisa Pentland Headshot sandstone

An article by Lisa Pentland (NSW)

Many Property Managers and business owners struggle with the idea of charging their landlords to provide them with an annual income and expenditure report. However, with the fierce competition on fees, I see this as a brilliant opportunity to really set yourself apart from your competitors as " industry experts, worth paying that little bit extra for".

My on the ground and more recent mystery shopping experiences tell me that your competitors are most likely to either not have the conversation about income & expenditure reports or dismiss it with "We don't charge for that, we just push a button and the software does it all". Well, indeed, if that is all they think is involved, quite rightly they shouldn't charge for it!
Property investors need you in their corner for "2" things you should have that they don't, skills and knowledge.

When it comes to the handling of their annual income and expenditure report they are:

Skill:
-   Pushing a button (as it has broadly been defined by our industry)

Perceived value to client:
-   Little or none (Understandably)

Most of you will be familiar with the saying "garbage in - garbage out" and when it comes to data entry, even the most advanced trust accounting programs rely on quality data in.

Knowledge:
So when it comes to the knowledge, how valuable are you? Do you know your stuff? Are you worth paying more for? Will your landlords expenses be correctly entered and coded? Will they really save accounting fees as a result of the report you provide them? Are you doing the job landlords can reasonably expect of you or are they getting what they paid for - nothing?

If you can answer yes to all of the following, your knowledge and commitment to excellence has a real value and provides a genuine advantage to your landlords. Take pride in your work and charge your fees accordingly:
• You have completed formal trust account training
• You continue to attend regular trust account training with your software provider (particularly as updates occur)
• You have customised your software chart of accounts and have a thorough understanding of how to manage and explain it to your landlords if required
• You have saved the correct codes against your regular tradies and expenses
• You know the difference between an immediate deduction and a capital works deduction and code them appropriately every time (this may require a conversation with your landlord or their accountant to correctly qualify the expense)
• You understand the term "effective life" and know where and how to reference it
• You understand the times during the property investment cycle that expenses and capital works can and cannot be claimed
• You are familiar and regularly refer to the following site / document; https://www.ato.gov.au/uploadedFiles/Content/MEI/downloads/ind39784n17290614.pdf
• You share the above link / document with new landlords and or with existing landlords as part of your end of financial year service
• You have a 3rd party double check your landlords disbursements every end of month
• You request your auditor / accountant review your landlords chart of accounts and your practices annually
• You have someone with greater knowledge to refer to if you get stumped

Real value to client:
-   High

A commitment to continued learning and development costs time and money, but if you're going to charge it's essential that you have the knowledge and skills to perform. Equally important are the skills to confidently market and sell this service. When you've got it, the combination should not only increase your fees and conversion rates, it should win you raving fans and clients for life!

Tip - The fee for an income and expenditure report qualifies as an immediate deduction so charge it before 30 June and your landlords can claim it straight away!!!

What’s Really Driving Fee Pressure?

Lisa Pentland Headshot sandstone

An article by Lisa Pentland

Is fee pressure really a result of your competition or could it be that …

Until recently, most often it has been our Property Managers who have been tasked with the responsibility of handling inquiry and negotiating the fees and terms of their company’s Management Agency Agreements. In my experience most (not all) Property Managers openly admit that they are not comfortable in a sales role and don’t enjoy it at all.

This makes perfect sense as the competencies required of a great Property Manager are more akin to those of an accountant i.e. attention to detail and problem solving skills. A Salesperson however, is enamoured with the communication skills to influence a preferred outcome.

Our surveys of successful career Property Managers using personality profile surveys such as the DISC model, identify the majority of effective career Property Managers as a “C” (conscientious) and an “S” (steadiness). Property Management Leaders tend to be C or S hybrid with “D” (dominance). High performance Salespeople and Selling Principals will often fall into the “D” and “I” (influential) categories. To see more on DISC profiles click here or for a very quick insight search DISC images.

Very few business owners invest in formally training their Property Managers in the sales skills they need to assist them in building the value of their services. Techniques to optimise their opportunities employing skilled follow-up methods, developing and managing a new business pipeline, asking open ended questions, building rapport and value, handling objections, negotiating and closing a sale, to name a few, generally don’t come naturally for people with the skills required to be a great Property Manager. So firstly we are tasking the wrong people with the job - never a recipe for success.

Further, I have found very few offices investing in CRM practices or software to support Property Management Business Development and no – our Trust Accounting products do not support business development – they have a different function.

And then we have incentives. Still the frustration of many businesses struggling to find the secret formula that will excite Property Managers enough to find an additional 3 hours in their day for prospecting, appraising and follow-up activities because who wouldn’t want to put another 10 properties into their already bursting portfolios? Here’s the tip – there is no incentive that will overcome these issues.

It’s an all too common theme that many of our Property Managers are already time strapped and struggling to stay on top of their primary workload in managing their portfolio. And even those with some extra capacity will invariably find something more important to do (like stick pins in their eyes) because prospecting, appraising and listing is not their preferred activity.

“But it’s their job!” I hear you thinking. Perhaps that’s part of the reason our industry suffers such a high churn rate – placing unreasonable or unrealistic expectations on people with little or no support is effectively setting them and our industry up for failure – who wouldn’t opt out?

How many top sales people would stay in a role where they had to manage every property that they sold to an investor? What effect would this eventually have on their sales volume? Do you think that they would work as hard to sell a property to an investor as they would to a home buyer? Would they eventually leave and go to a competitor where they didn’t need to manage property and could focus on doing what they love and are best at?

So as an industry we offer to the market untrained, distracted, stressed and possibly even disinterested people, tasked with the unwanted burden of selling the company’s property management services. Could it be that perhaps it’s not your competitors dropping their fees that’s driving downward pressure on your returns but the fact that our customers are better negotiators with a greater interest in the outcome?

Fees for Service (NZ article)

 

Hamish Cropped Nov2014

An article by Hamish Turner (NZ)

There is a varying range of fees that property management businesses charge their clients for their service.

For the most part, there are 3 - 5 fees that are typically charged. They include management fees, letting fees, tenant lease break fees, maintenance processing fees, routine inspection fees, administration/statement fees.

Some of the less commonly charged fees include a marketing or advertising fee, passing on tenant database checking fees and lease renewal fees.

Understanding the varying fees within your market place can aid you in deciding what fees to charge new clients. The bigger part of fees and “selling” fees to your clients is of course highlighting or being able to sell not only your fee structure, but “your points of difference” to that of your market competitors.

For example, “we” charge a marketing fee which is within a range to that of our competitors, however, we not only provide a for rent sign, a newspaper listing and an internet ad, but we also provide a professional video marketing the rental property to prospective tenants. Also, if the property is empty for more than a 7 day period we upgrade the internet ad listing from a standard ad to a “feature listed” ad which sees it get 3 times the number of viewings.

This is purely an example, but highlights not only the fee being charged for say a “2nd level” fee, but also the variance in what the fee covers in terms of the varying service and points of difference to other agencies.

Some agencies simply charge the 1 fee for service. Although the 1 fee for service restricts varying means of income cash flow, it does simplify things for prospective clients and see’s heightened levels of conversion of new clients to say that of the more traditional varied fee schedule.

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