Reducing Commissions

By
Services for Real Estate Pros with RE/MAX Kai Lani

Like buying and selling agents, property managers also run into landlords who want to negotiate our commissions.  I recently had an opportunity to reduce my commission in order to manage a very exclusive home that the owner wants to place on the rental market because he has been unable to sell it.  I respectfully declined.   Here is the rational I used.    Thought you might find it of interest.  

There is legitimate rationale in having our commission based on a percentage of the rent; the higher the rent, the more difficult the unit is to rent. My expenses, and yours, go up rapidly as I sequentially advertise the unit and show it over time. Please consider the fact that my time spent unsuccessfully marketing a high-priced unit can better be spent working with units that are priced at a level where there is a large pool of potential tenants. The product I have to sell is my professional time, and it is very valuable when applied to units that rent quickly.
With this kind of a home, there is always the potential that it will not rent at all, especially if I am stuck with a fixed rental rate over time and in which case I will have put in a lot of expensive effort in attempting to get it rented with no return whatsoever. This situation where the home doesn't rent is totally unacceptable to both you and me.
I am thus not willing to make an adjustment to my fees, particularly if you are going to plan to rent the unit at a level that will cover all of your expenses. I do not believe it would be a good business decision for you to attempt to rent the unit at a level that will cover all of your expenses because of the anticipated cost of having the unit vacant for an extended period. If you are going to need to cover your expenses as outlined, renting the unit will be so difficult that I don't believe I can rent it in any reasonable time and my costs will be higher than I am willing to accept.
I will be willing to take the unit at above $5,000 per month rent only with the stipulation that you would be willing to authorize me to drop the rent after a fixed period of perhaps 60 days with repetitive drops in rent until I would be able to rent the unit. Otherwise, this will simply turn out to be a lose-lose situation for both of us.

Please let me know if you are willing to work with me under these terms! And thanks again for considering me to be your Property Manager.

It always feels good when I do something like this.

Jerry Bangerter, RA   Property Manager, RE/MAX Kai Lani, 25 Kaneohe Bay Drive, #109, Kailua, Oahu, Hawaii, 96734    --   http://www.rxkl.com/    

 

 

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Rainmaker
1,251,659
Wallace S. Gibson, CPM
Gibson Management Group, Ltd. - Charlottesville, VA
LandlordWhisperer

Jerry - I lower my fees for multiple properties by one owner and I am probably the highest priced PM in my area; however, I still get clients when they see my management presentation that outlines my property marketing program, physical and fiscal management.  I also have numerous tenant charges which owners appreciate since I am actually collecting from the person/tenant who is causing the work - late/notice fees, lease re-write fee, 20% markup on charges to the security deposit....When a prospective owner calls and the FIRST word are how much do you charge?....we are rarely a match for client and property manager....

The 5 MOST IMPORTANT QUESTIONS to ask when interviewing for a PROPERTY MANAGER.....

1. "Do you do property management and general brokerage?"

Ask it just this way so you can determine if they really want to sell your property or sell you more property. If they do property management as a way to get or keep real estate clients, they are doing it as a "courtesy" and rarely have the experience, education or dedication to do the job properly. When the going gets rough with your property, chances are they will be too busy to return your calls.

"Full time property management companies provide the best vehicle for overseeing your single family, detached residence in your absence. The best ones for residential properties are NOT affiliated with real estate brokerage companies and do not depend on commissions for income." THE ABSENTEE LANDLORD'S SURVIVAL GUIDE (Second Edition * 1997)...Jack Rower

2. "How long have you worked as a Property Manager?"

.....NOT real estate....property management

While property managers may have the same state license requirements as real estate agents who sell property, property management is considered a "specialty" requiring direct and specific knowledge of the field. Additionally, the more experience the manager has, the more expertise you will have at your disposal.

3. "When was the last time you took a property management course?"

Unlike the practice of real estate sales, property management is governed by specific rules that can be changed or altered in many ways....state legislature(VRLTA), case law, direct government regulations (Fair Housing/Discrimination) so having a professional manager who keeps abreast of these various law changes is crucial to you as a client. Again, the more knowledge that is available to you in the management of your investment, the less likely you will be unpleasantly surprised during your relationship.

4. "What professional property management affiliations do you have?"

Most real estate agents belong to a Realtor organization. Property managers, however, can obtain more expertise and education through such organizations as IREM * Institute of Real Estate Management. The more information and knowledge that a property manager has, the more information and expertise will be available to you in the management of your real estate investment.

5. "Do you own rental/investment property?"

While it is easy for a property manager to say "they feel your pain", somehow it is easier to take bad news from someone who has been there....negative cash flow and all. Be suspicious of a property manager who has all their "eggs" in the stock market.

Lastly, ask yourself....would you rather pay a little more for an experienced property manager, or pay a lot more to an attorney when your property manager makes a costly mistake in the management of your investment real estate.

* http://VAHomes4Rent.com

Feb 04, 2008 08:11 AM #1
Rainer
17,201
Jerry Bangerter
RE/MAX Kai Lani - Honolulu, HI
Wallace, Thanks for the well thought out response.  You and I are working the same way.  We have recently added several supplemental services that the landlord can "buy" at extra cost.   Working great thus far.   It's interesting that the landlord who requested the cut in my fees came back hat in hand later and we are now finalizing the rental agreement at my full commission rate.   I actually don't like high priced listings very much; takes too much time to get them rented.    Jerry
Feb 04, 2008 08:22 AM #2
Rainmaker
73,960
Barbara Hershey
Bath, ME
Realtor, Maine Real Estate
Good for you Jerry!  I think you handled that beautifully!  I'm getting better at defending my commission....but I've got a ways to go before I reach your level!  Way to go!
Feb 10, 2008 07:18 AM #3
Rainer
23,580
Kai Lani
RE/MAX Kai Lani - Kailua, HI
RE/MAX

Barbara,   Keep working on it.   Once we can get Property Managers to stop cutting commissions, we can raise our prices.  None of us are making enough moeny at this business.  We are our own worst enemies!   Jerry

Feb 11, 2008 06:41 AM #4
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