Traditional property management agreements could be destroying your service proposition and forcing landlords to dismiss your value.
One of the most destructive elements that will thwart an agency’s growth plans is the typical management agreement. These often have the (presumably) unintended consequence of undermining all the work the agency has done to define its point of difference and connect to its targeted landlord segments.
In most jurisdictions, the law determines a set of information that must be included in a management agreement. For example, it has to include things like the landlord’s details, the property details and whether the agent can authorise repairs to the property.
Typically, there’ll also be a page where all the agency’s fees are listed, usually called a fee card.
The inclusion automatically puts the agency on the back foot. The problem is that fee cards reduce everything an agency does to generic language and forces the discussion to fees. They also serve to reinforce a persistent perception among landlords that property management is just about finding tenants, collecting rent and fixing things when they break.
The role of a property management agency has changed so much. We are risk managers, tenancy managers, investment managers, negotiators, bill payers, paralegals and compliance inspectors. And yet, few management agreements or fee cards have evolved to match that change.
Worse still, our collective marketing efforts have not evolved at the same pace either, meaning that our landlords often give us no credit for all of that extra work.
The result is that today, we have management agreement forms that simply ask: Does the agent have authority to issue work orders on behalf of the landlord? Yes or No. Does the agent have authority to pay bills on behalf of the landlord? Yes or No.
Can the agent market the property? Yes or No.
The list goes on.
Anyone who knows our industry knows that the interesting part of these questions is never resolved by a ‘Yes’ or ‘No’ answer. Instead, it is about how an agency does those things.
Sure, the agent is authorised to collect rent, but how will the funds be disbursed and how often? If the agent can issue a work order, has the landlord delegated authority to the agency to spend up to a certain limit? Has the landlord declared how many quotes will be needed and must the agency use certain tradespeople?
How many bills need to be paid and on what terms? What happens if there are not enough funds in the trust account? Does the agent have the authority and ability to draw funds from the landlord when there is a shortfall of funds to meet those bills or is the agent expected to hold money back in anticipation?
How many open homes is the agent expected to perform? Will the owner invest in professional photography and a floor plan to assist the marketing process? Who is responsible for performing property inspections and ensuring that the property is compliant with safety and building-related legislation and best practices?
What if the property manager cannot reach the landlord for instructions and a decision has to be made? Should the agency default to a yes or a no?
Potential landlords are forced into the situation where they have no way to understand the services that will be provided and will therefore draw the natural conclusion that all agencies are the same.
The list goes on and on. The answer to all of those questions (and the hundreds more like it) is the qualifier of the service that the agency delivers and the costs of doing so. It follows that it’s not until an agency has worked through all of those issues that a fee can realistically be calculated.
Additionally, without going through the process of answering these questions, potential landlords are forced into a situation where they have no way of understanding the services that will be provided and will therefore come to the natural conclusion that all agencies are the same. From that conclusion, they may decide to negotiate on price and choose the cheapest.
That landlord behaviour is perfectly rational in the context of how we present ourselves as an industry and I hold the management agreement template at least partly responsible for that. In summary, instead of just talking about the fees that are charged, agencies should instead focus on the services they offer.