Understanding Property Management Fees

Property management fees allow for the maintenance, rental, and general administration of property investments. A large number of responsibilities are placed in the hands of property management companies, and each brings its own unique experience and expertise to an organization. 

Property management fees vary depending on the specific situation and needs of the client. Having a clear understanding of management fees will help property owners throughout the entire management process - from selecting a manager to understanding what services should be expected of the management company itself. 

Services required

To understand property management fees, consider the services required for maintaining the property. Whether property owners require full or part-time management will determine, to a large extent, the fees involved. The location of the property and whether on-site management is required should also be taken into account.

In some cases, a base management fee is charged with additional charges applied for services that are considered supplementary. This base fee can be structured in a couple of ways:

Fixed-Rate: This set rate is usually applied in the case of large properties. Often, larger buildings require a significantly greater commitment of time and resources. Therefore, a flat-fee is often more practical as opposed to a percentage-based fee.

Percentage: When the fee is based on the percentage of the rental amount, no payment is made if the property is not rented. Therefore, it’s in the best interests of the property management company to ensure full occupancy when applying a percentage-based fee. 

Types of Fees

Once a general fee structure has been established, we then consider other fees that generally fall within the realm of property management. 

• Lease Setup - This covers setting up the account and notifying related HOA and utility companies of management changes. 
• Leasing Fee - This covers property showings, applications, and related background and credit checks for tenant screening. Managing tenant turnover will often be considered under the leasing fee. 
• Vacancy Fee - A vacancy fee can be applied in cases where no tenant is occupying the property. How this is applied varies so we recommend clearly understanding how the management company chooses to implement this fee.
• Lease Renewal - Renewing a tenant’s lease requires time and resources. Managers will sometimes charge a lease renewal fee to cover the expense.
• Eviction fee - In the unfortunate case of an eviction, costs related to legal services quickly add up. By clarifying how a management company handles evictions, property owners can avoid unwanted expenses. 
• Bill Payment Fee - This will vary from company to company. Payments for such items as dues and insurance fall under this fee. 
• Advertising – Investing in advertising will help minimize the loss of rent due to vacancies.

Ultimately, the number of ways that managers structure their fees is as varied as the companies themselves. Understanding the fees being applied, and what services should be expected for those fees, will help keep property management operations running smoothly and without any unwanted surprises.