The Property Management Contract - Taking it Apart
The manager will be taking on significant responsibilities with the owner's real estate. It is important to look at the contract and at a minimum it must
1. Name all parties to the contract
2. The legal property address
3. Define the responsibilities of the manager and the owner
4. Enumerate all fees and commissions for leasing or real estate sales.
5. Define the term of the contract
6. Both parties must sign and date the contract
What is Agency?
"It may be referred to as the relationship between a principal and an agent whereby the principal, expressly or impliedly, authorizes the agent to work under his control and on his behalf. The agent is, thus, required to negotiate on behalf of the principal or bring him and third parties into contractual relationship."
Wikipedia
Basically you are signing off and binding the manager to act in your behalf and in your best interest regarding the management of the property.
The Take-away:
1. You should require a current license and go to search your state dept. of Real Estate to see if it is current and that there have not been any complaints or suspensions or revocations of the real estate license.
2. You should also check with your local Better Business Bureau and ask for referrals. 3. Finally, ask to see the general liability insurance policy and if the principals have errors and omissions insurance.
The length of the Contract: Often this is one or two years. Property Managers don't like a month to month contract because they need to get the tenants into the rent roll and into their system. They also need a little time to learn the property. One year should be a minimum. The Take-away: Be sure that the contract can be voided, without having to provide reason and without penalty with a written 30 day notice to terminate the arrangement. Be sure that your written termination date matches the hire date or you may have a deduction for early termination. If the hire date was on the first, terminate on the first.
Duties and Responsibilities of Managers
1. Maintenance and Inspections: In a general sense they should perform all the duties necessary to maintain and manage the property. You may specify that certain tasks or procedures remain the owners to do. Many owners like to do their own maintenance.
The Take-away: Property management companies often have their own handyman and you should be very clear about how this works. If a light bulb is out and the handyman has to travel back and forth and change the bulbs, there is likely a minimum one hour charge. It could cost you $45.00 to change a light bulb.
2. Major Repairs: you should expect that all major repairs be completed with three independent bids and receipts to back up the billing.
Take-away: To protect yourself, you should establish limits on how much can be spent without having to get your approval. If the bids all seem high, we think you should have the right to bid it out yourself. If you do, you would then be responsible for the outcome and if it was not up to code, the management firm may not want to represent you. So, for those who know what they are doing, this might be a money saving option on big jobs.
3. Inspections: The manager should be there for all city inspections and without any charge. This is part of the management of the property. Take away: you should have in writing that the company will also provide annual inspections and a written report.
4. 24 Hour emergency Service: This is part of basic management. There must be a 24 by 7 response team and there should be no extra charge for this. Its part of the basic manangement of a property.
Tenant Screening and leasing
1. Marketing and advertising the rental: The company should be familiar with the local market and be able to price the unit so that it rents reasonably fast and at the right rent. A poor rental process can cause you time on the market while all the bills still have to be paid. We have seen many companies try to hit home runs with getting the highest price only to be over zealous and cost the owner months of income.
The take-away: Ask the company how much leasing experience they have, how long a property is on the market. How to they come to their pricing strategies and how they intend to advertise, and are there any costs involved. We think that craigslist and a company website should do the job. With the exception of luxury properties, newspaper classifieds are a costly expense.
2. Tenant Screening: What are the tenant screening criteria. he company should be able to clearly offer you a set of rules. This should never be an off hand "we pick em if we like em" approach. Thats a law suit waiting to happen. We will write on fair housing, the federal government's body of law governing housing and discrimination. meanwhile there are a series of articles at our website you can read if you need to know.
Financials:
All management companies should have accounts online and always available. The bigger companies will have an accountant in the company. Thats a plus.
The company responsibilities are:
1. Track income and expenses to determine profitability
2. Rents and other fees from the property shall be deposited into a special bank account or trust as required by law and cannot become mingled with the company funds.
Issue monthly income statements
3. Negotiate rental agreements
4. Respond to tenant requests and deal with problem tenants
5. The Agent should collect the rents and other income from the property promptly
6. From the rents received the Agent should pay all operating expenses and such other expenses as requested by the Owner. This may include the payment of mortgages or taxes.
Howard Bell for yourpropertypath.com