An article by Peter Bruhn (WA).

I am writing in response to Hamish Turner’s article on the discounting of Property Management fees and totally concur with his opinion on the unfortunate common trend by Agents and their employees discounting fees.

With operating costs increasing, particularly staff costs, profit margins becoming tighter and client expectations becoming more sophisticated you would think that a prudent business proprietor would be looking for ways to increase their fees and not reduce them.

When will we wake up and ask Lessors to pay us the amount of income to which we are entitled? Considering the fact that if an average Property Manager manages 100 properties on a daily basis (24/7) then the accumulated value of their “portfolio” is more valuable than the average stockbroker. I bet you don’t see your stockbroker discounting 10-15% with a profit margin running at 20%?

Hamish’s article raises some great points and others to consider are:

1. Value of discounting also diminishes the overall value of the Agent’s business with the Agent’s business based upon a factorial multiplier of the Management Fee percentage collected. Why would an Agent discount the net worth of their business?

For example, let’s use a property for one year at $500 per week rent at 2 different management fees.

Example 1.    $500pw at 8.5% M/Fee       Example 2.    $500pw at discounted rate 7%

$500 x 52 weeks x 8.5%                            $500 x 52 weeks x 7% (Disc Rate)

=$2210 pa M/Fee                                       =$1820 pa M/Fee   

Difference $390 bottom line

X3 (factorial)                                               X3 (factorial)

$6630 – Value of rental                              $5460 – Value of rental                 

Difference $1170 or 18% devaluation of business.

Now extrapolate that over 100 rentals and you can see the problem of discounting!

1. Rewarding staff for mediocrity - Most Agents reward and remunerate their staff for new business by supplying new rentals. However, if the staff discount fees significantly (both M/fee and Ancillary fees) and the Agent then rewards the staff for the new business (i.e. Standard 1 weeks rent) it may not make the whole exercise a profitable one for the Agent especially if the management is for a short period (e.g. 6 months).
2. Public Perception of Agents – If Agents or staff are content to heavily discount fees purely to gain the business rather than negotiate their true net worth for services offered …then what message does it send to the public and in particular portray to that Lessor.  The message I believe in the relationship is that the Lessor is extremely valuable and important and the Agent is subservient and not worth being paid for the services offered and completed. Cheap fees tend to manifest cheap service and lack of professionalism.

 

Forget that burglaries, storm damage and other nasties happen outside business hours …the impression portrayed is one of “a get the business at all cost” and not the sign of a strong professional who manages property with integrity and skill and furthermore is remunerated accordingly.

Only we can stop the discounting of fees and our perception of professionalism and it starts by all Agents charging the fees commensurate with service.

You don’t see the public haggling over a tradesman’s bill very often ….or when was the last time you took your Doctor to task over their account ….given we are there 24 hours a day for every day we should be remunerated accordingly.  

Anytime you want assistance to debate this topic with the multitude of discounting Agents out there give me a shout! I’m in your corner!