Property managers should offer different levels of service for different fees
One of the most commonly accepted wisdoms about property management is that landlords are price sensitive and that a business has to compete on fees.
I reject this outright. Before going into it, I ask that you first print out a copy of your management agreement and have a read of it with fresh eyes.
Most management agreements follow the same formula. Someone has gone off and read the legislation and faithfully copied out the fields that the law says must go into each agreement. For example, in NSW, an agent may specify whether or not the agency will do routine inspections, and whether they will disburse money to owners. The agency has to specify whether bills will be paid on the owner’s behalf.
Curiously, the fee section of the agreement is in another part of the agreement. It sits by itself, crammed into a corner. Most agents write “See Schedule X” and then copy out the standard agency fee card into that schedule.
Now, with these documents in hand, imagine you are a landlord negotiating the services your agency will provide. Imagine too that you have three different proposals from three different agencies.
We have ended up in a situation where the core document that sets out what you will do for a landlord is identical to every other agency. Of course, you and your competitors will have ticked all the required boxes. Yes, you will do inspections. Yes, you will disburse money. These are, in practice, non-negotiable. To a landlord, you’re all offering the same service.
Worse, the only part of the agreement that is subject to any negotiation is the fee card. No other part of the agreement can logically be changed or negotiated.
No wonder that landlords choose to negotiate fees – there is nothing else to discuss!
I believe we have been poorly served by these standard forms. They have set things up so that we are forced to negotiate on fees only. Much better to start again and negotiate service levels. You want daily disbursements? Fine, that will be more. You are happy with monthly disbursements? Fine, that will be less. You want three inspections a year? Fine, that will be an extra $50 per inspection. You want photos with the inspection? OK, that will be an extra $25 per inspection. Want us to pay your bills? No problem, that will be $1 per bill processed.
Each service you provide, and the level to which you promise to provide it, should be negotiated as a whole. It doesn’t make sense to negotiate fees without regard to the service level you promise. To do so just corrupts the whole negotiating process and leaves everyone worse off.
I believe the future of our industry will be unlocked when agencies move beyond fee cards and start designing genuine service packages that are tailored to the different types of landlords. Some landlords will want some services and will pay for them, others won’t. Each landlord will choose a service package that works for them.
I know this is the future for our industry because it has, or is happening, in every other service industry. I don’t know a restaurant that lets you order what you want but then charges everyone the same. I don’t know an airline that is afraid to charge more for a business class seat and then serve different food in each cabin. Why should it be any different for us?
How to move to this world? Start by throwing out the management agreement template you have and start again. Think about a logical set of service offerings that you can provide and price them to perceived value, not to cost. Be creative in the way you charge for services, and be prepared to move beyond a simple “percent of rent” fee that covers everything. And get rid of the fees and charges mentality.
Ben White is non-executive director at Ray White. He will be presenting at the Wealth Conference on June 3 and 4 on the Gold Coast, a property management conference.
