Are low fee property managers worth it?

Property managers who advertise themselves as having “low fees” might seem appealing to owners who want to maximise their return, but this generally isn’t the best course of action. When choosing someone to represent your property, it’s important to look beyond the costs and consider the overall package.

A better level of service

The old saying ‘you get what you pay for’ applies to most things in life, but it is particularly true when it comes to property managers. For those “low fee” agencies to make a profit, each agent will need to be responsible for a greater number of properties overall, compared to more expensive firms, in order to turn a profit. This means that they will have less time to attend to individual properties. They simply don’t have the resources.

Here’s an inside industry tip – agencies charge what they believe they are worth, taking into consideration the level of service they intend to provide to their clients. Property managers who market themselves as “cheap” are not exempt from this strategy, so you can imagine they don’t consider their level of service to be worth a lot.

Taking overheads into consideration

There are a range of costs associated with our business that includes such things as inspection software, office space, and salaries. These will impact their overall costs and influence what fee level is necessary to make the profit level they desire.

Some businesses may not invest in the latest technology and training for their business in order to keep costs low. While that reduces overall costs to the business, which can lead to lower fees for you, the landlord, it doesn’t paint the full picture. These things can support property managers to be more efficient, adhere better to regulations and remove a lot of the administrative tasks, which means they have more time to personally service your property.

This doesn’t automatically mean that a more expensive agency is going to be better at providing services compared to one that is cheaper. However, having adequate staff levels, investing in technology and providing time for training are all cornerstones of providing a reasonable level of service, so if agencies are quoting you a lower than average amount, it is a fair assumption that some of these items are being neglected.

And the person that suffers most from this? The owner, particularly when it comes to more complex issues such having to represent you at SACAT (The South Australian tribunal).

But there’s also another reason an agency might have a low price – because they have lost clients and are trying to create more business. If this is the case, you have to ask yourself what has led to this downturn.

It could cost you money

Having an agent who has less time to spend on servicing your property can impact your bottom line as they might not be able to fill a vacancy as quickly, action maintenance items or be as attentive with inspections. Scrimping on these services can end up costing you a lot of money in the long run.

As mentioned above, training and technology, while increasing costs, can assist landlords when they are met with complex issues, because the property manager has the resources and expertise to effectively deal with the situation, reducing the risk to your investment when things go wrong.

But there is also another concern you should look at with cheaper property managers. As mentioned above, these agencies are going for a quantity business model, which means that each individual manager will have a lot more work on their plate to meet their margin, creating an environment where professional burnout and mistakes happen more frequently.

What you should do

Before signing on with any property management company, it’s a good idea to have a chat with them. It doesn’t matter whether that’s in person or over the phone – the purpose of this exercise to get a feel for what they are like to work with – something you can’t do through a website of social media platform.

Any agency should be able to easily answer questions regarding their service and how they structure their fees. If they don’t answer properly, that’s a red flag. Some firms providing property management services are less concerned about making a profit from rental income because they have other sources of income (e.g. property sales). That’s not someone you want representing your investment.

Trust your gut when speaking to them – if something feels a bit off, then there’s a good chance there is an issue.  Don’t sign on with any agency you don’t feel confident in, even if they are quoting you an amazing fee, because it might just not be worth it.