The fee-cutting trap: Why dropping prices could kill your rent roll

After four interest rate rises this year and another potential hike around the corner, landlords have been trying to stretch their cash flow further as holding costs rise.

Cara Bergmann, director of Cara Bergmann Properties, said that, instead of trying to win clients by reducing their fees, they should focus on enhancing the quality of their services.

She said that while cheaper fees didn’t always signal lower-quality services, landlords were drawn to value for money, with property managers needing to deliver on what they promised.

“Are we not worth more if we do more? That’s my philosophy. I’m not the fastest growing agency, and I want to be a quality over quantity agency,” she said on the PMX Podcast.

Here is how you can grow your business through value:

Cheaper isn’t always better

Bergmann said that by being confident in their fee structure and advertising their value, rather than low prices, property professionals could attract more clients seeking quality.

However, she said that the business’s services had to match their pricing to avoid future back-and-forth with landlords.

“You have to own your value, but you also have to know what you do for the client,” she said.

“Why would you drop your rate if you thought you had value?”

She said that property managers keeping their commissions intact showed landlords they were confident in their services, allowing them to attract more clients.

On the other hand, Bergmann said lower fees could sometimes signal lower-value services.

She once lost a prospective client who chose a property manager charging only 5.5 per cent in fees, compared to the average of 7.5 per cent.

The property manager took only half a week’s rent as a bond instead of two and did not sufficiently ensure the rent was paid.

The landlord, who had been overseas, returned to find the tenant $24,000 in arrears.

“He did not know he was in arrears – there was no breach notice,” she said.

Bergmann said the investor took the matter to the Queensland Civil and Administrative Tribunal (QCAT) but ultimately lost.

“He wanted me to take over the property … long story short, I said to him, ‘this is my fee’ … and he still tried to negotiate,” Bergmann said.

How to create value

To justify higher fees with value, Bergmann said property managers should form relationships with clients to understand their needs and help them with their property goals.

She said it was isolating for investors when agents used ‘pods’ and executive business unit (EBU) structures, where several staff members took responsibility for a portfolio or client.

“A pod and EBU, to me, is a sales thing. In property management, yes, there’s very successful pods – I think if you don’t know your client, you’ve got a bigger chance of losing a client,” she said.

While Bergmann acknowledged the models could work well for some agencies, she said landlords were more likely to leave if the property manager didn’t fully understand their needs.

Additionally, she said property managers could often justify higher fees if they handled many operational and administrative duties themselves rather than outsourcing them.

“I think everyone’s personal, but for me it’s just do what they need you to do; I’m so anti this whole outsourcing thing.”

“If you’re doing everything and you’re not outsourcing the smoke alarm companies, you’re not just doing your six-month inspections, then you’re worth more.”

Additionally, Bergmann said that property management businesses could also provide value by establishing a two-way referral pipeline

She said property managers could refer their clients to the sales department when they were ready to sell, providing an extra service to the landlord and boosting the agency’s overall commissions.

“If they work well together, everyone makes money,” she said.

Listen to the full episode here.