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What To Look For In A Property Management Agreement

It’s time to sign on the dotted line with the property management company. But to get the ball rolling faster, you might be tempted to trust your management team and decide to skim past the final contract without a thorough reading. We always recommend that property owners take a look at the final draft (no matter how many revisions you’ve already been through) to be sure you’re signing something you truly agree with.

Top 5 things to look for before you sign a property management agreement

 

    1. What isn’t included in the fee paid?
      You should look for what’s not included in the property management agreement. For instance, they may charge an 8% monthly fee but then charge extra per inspection. Make sure the services you require are included in the price of the management fee. You don’t want to deal with additional charges at the end of each month.

Pro-Tip: Try to include all work expectations at a fixed price, as opposed to hourly rates, to reduce unexpected overheads and yield higher returns.

    1. Extra fees in the event of a sale, insurance, or legal matters
      In unlikely situations like a sale, eviction, or insurance claims, some property management companies will charge extra if circumstances demand it. For instance, if you sell your property, what happens to the management company? Most of them will charge a fee in the event of a sale. Also, look specifically for the eviction policy and ask if the chosen company only gives the attorney’s contact information or takes care of the process altogether. If they do, will they charge extra for it? In addition, insurance claims can be a nightmare. If a storm damages your property, will the property management company handle it?
      Know that some companies charge an hourly rate for dealing with insurance companies. That’s undoubtedly a headache! So, as a benefit of your contract, they should handle these issues without a fee.

Pro-tip: Know that companies that charge you for evicting their chosen tenant after screening are double-dipping.

    1. Indemnity clause
      All property management agreements include the indemnity clause, but some are a little stronger than others. For example, some indemnity clauses exempt the management company from liability, even in case of the property manager’s negligence.
    2. Restrictions & authority clause
      The contract for property management services must include a clause that lays out the permissions and the restrictions defining what a property owner and the manager can and cannot do in their dealings. For instance, a property manager should know what amount they are authorized to spend on repairs without the owner’s approval. Similarly, an owner could be responsible for maintaining a minimum balance for repairs, emergencies, etc.
      Also, the contract must be clear that a property owner cannot sign an agreement with potential tenants on their own. Instead, the property management team would be in charge of placing listings for empty units and vetting potential tenants.

Pro-tip: Stay in the loop with finances and let the team know that you hold them financially accountable for certain spends. The more you know, the more wisely you can spend your money.

  1. Termination clause
    Know their stance on termination beforehand. For example, if the property manager is negligent and you decide to switch, you must know how to get out of the contract if you need to. Will there be fees for early termination? What notice will you have to give? Will you need to provide reasons? What are your obligations upon termination?
    Pro-tip: If the chosen property management company sets too many stipulations on terminations, it raises the question of how many people are trying to switch.

When you look at these five areas, you’ll most likely catch the glitches that make a “good deal” not so good anymore. Nevertheless, the risk involved in skimming your contract isn’t worth taking, so enter into the agreement with your eyes wide open.