What is a Property Management Agreement?

Working with a property manager is one of the most beneficial ways to successfully own and operate a rental property while maximizing your return on investment. Upon the initial hiring of a property manager, a property management agreement will be signed by both parties before moving forward with the process.

A property management agreement is an essential aspect of working with a property manager as it outlines the terms and conditions of each parties’ duties and responsibilities. The property management agreement will serve as the basis to what your property manager is authorized to do and how funds will be dispersed, along with all aspects of how your property will be managed.

As a property owner, you should be familiar with your property management agreement and read it from front to back. So, let’s break down some of the most important aspects of your property management agreement.

TERM: How Long Are You Bound To Your Property Management Company?

Before entering into an agreement with a property management company, it is essential to know the term or length of your property management agreement. In other words, are you signing a contract that binds you to this property manager for a specific period of time?

Some Orlando property management companies will require a management agreement for a certain amount of time. It is common for property managers to require a 12-month management contract with a 60-day written notice of cancellation. However, we advise against working with a property manager who locks you into an agreement. 

At The Listing Real Estate Management, we do not require a certain period of time for our property management agreements. We believe that if a property manager is confident in their abilities, they do not have to require a 12-month agreement. As a rental property owner, you want what’s best for your property at all times. If your property manager is not living up to your expectations and underdelivering on the success of your property, you want to be able to get out of the agreement. 

Property managers with fixed agreement terms may not have your property’s success in their best interest. This fixed term agreement is a way to ensure that you must stick with them even in the event that their services do not prove successful.

PROPERTY MANAGEMENT AUTHORITY & RESPONSIBILITIES: What are you authorizing your property manager to do?

There are countless property management companies in Orlando. You want to choose the one that works best for you and your individual needs; this means finding the company that treats your house as their own, as this company will play a pivotal role in the success of your property. How each property manager operates and the services they offer/provide will vary depending on the company and your individual property management agreement.

 

 

The property management companies authority and responsibilities aspect of the property management agreement will explain what exactly your property manager will be doing. This section will typically outline the maintenance reserve threshold and detail the manager’s authority to authorize maintenance repairs at or below the threshold without owners’ authorization. 

Responsibilities outlined in this section include items such as rent collection responsibilities, lease and contractual negotiations, accounting standards, security deposit procedures, trust accounting, advertising outlets, serving legal notices, etc. It is vital you read this section carefully.

In addition, be on the lookout for Power of Attorney, or POA, in this section. You will typically find POA in property management agreements where the managers sign the lease on behalf of the landlord. This helps streamline the leasing process and protect owners from themselves.

LANDLORD’S REPRESENTATION OR DUTIES TO PROPERTY MANAGER: 

While your property manager will be responsible for a majority of operations such as marketing and leasing, screening tenants, collecting rent, and maintenance and repairs, you still have some responsibility as a landlord/property owner. 

There are some aspects of owning a rental property that a property manager should not be in charge of. Some of the processes that should not be completed on your behalf are paying your mortgage, taxes, HOA dues, and insurance. These are essential duties to owning and maintaining ownership of your home. Placing these highly important responsibilities in the hands of a property manager is not only a bad idea, but it could be a recipe for disaster. 

As a homeowner, these are tasks that you must complete and assume responsibility for. If any of these tasks are not completed, the ownership of your home can be at risk. We recommend setting these items on autopay to ensure none of them are missed or late.

In addition, your property manager will also require liability insurance, which is a specific rental property insurance coverage. Liability insurance will protect you in the event of an injury on your property. You must give the manager the declaration page with liability insurance coverage of no less than $100,000/$300,000 per occurrence. In addition, the manager shall be designated on said policy, if possible. Most insurance providers will have no problem adding your property management provider as an additional insured.

PROPERTY MANAGEMENT GUARANTEES: Are They Visible In Their Property Management Agreement?

Most reputable property management companies’ property management agreement will include some sort of guarantee for the services they provide. Certain guarantees show that the company is experienced and confident that the services they provide will be successful and up to par.

For example, here at The Listing Real Estate Management, we have a 12-month tenant guarantee in our property management agreement. Our 12-month tenant guarantee means that if any tenant screened, approved, placed, and managed by The Listing Real Estate Management vacates in default of their lease before the end of their 1-year lease agreement, we will find a new quality replacement tenant FREE of charge.

We include this guarantee in our property management agreement to reassure owners of our commitment to placing only high quality tenants with a history of financial responsibility and rental success. A rental property cannot thrive without high quality tenants, which is why this guarantee is so important to us. 

Guarantees to Avoid 

Although guarantees like our 12-month tenant guarantee show reputability, there are also some guarantees you must look out for in property management agreements. These are guarantees that sound beneficial at first, but eventually end up having a catch behind them.

Eviction Guarantee:

An eviction guarantee is one of the property management guarantees you want to avoid. An eviction guarantee is when a property management company promises to pay for an eviction if an eviction is necessary and does occur. 

As a property owner this sounds good, right? No rental property owner wants to deal with an eviction, so if it is paid for at least that’s a plus. However, the catch is usually that the property management company will charge you with another tenant placement fee. An eviction in Florida will typically cost roughly $735 to $850 uncontested. However, a tenant placement fee usually costs about 75% of one full month’s rent. 

    • Say your rent is $1,500. 
    • 75% of $1,500 is $1,125
    • You pay $1,125 and your property manager pays $735-850

The outcome of this situation is that you essentially end up paying a larger amount of money to your property manager; paying more for the tenant placement fee than you would for the eviction.

“Leased in X Amount of Days or Two Months Management Free”

In addition, property owners should look out for months of free management guarantees. These guarantees usually say that the property management company will find a tenant for your property in a certain amount of days. If they fail to do so, you will be compensated with a month or two of free property management.

At first, this may seem fair; they promise to lease your property in a certain amount of time and if they don’t, you benefit from it. The goal of this guarantee is to show that the property management company has the ability to acquire a tenant quickly. Although leasing your property quickly is ideal, finding a high quality tenant should be more of a priority.

The catch here is that with an “X amount of months free” guarantee in the property management agreement, the property manager will rush to find a tenant to fill your vacancy. Since the company does not want to lose out on money, they are pressured to uphold their end of the deal. This means that they prioritize speed over a reliable tenant. Anyone can fill a rental property with a tenant, but it’s the quality of the tenant that will ensure the success and prosperity of your rental property.

PROPERTY MANAGEMENT COMPENSATION: What Are You Being Charged? 

Before signing the property management agreement and entrusting a property management with your investment, you must familiarize yourself with the property management fee structure. The property management fee structure will vary from company to company, so it is important to review this part of the property management agreement, even if you have worked with a property manager in the past. Most likely, it will not be the same fee structure.

At The Listing Real Estate Management, we prioritize trust and transparent Orlando property management pricing. We are upfront with our clients and advise property owners to steer clear of companies who do not seem completely transparent about their pricing.

The property management agreement should clearly outline how you will pay, what you will pay for, and when you will pay for it — this clause should be easy to find. Some key aspects to identify are:

    • Does the manager clearly show the fee structure?
    • Are they charging a percentage based or a flat fee?
    • What is the leasing fee?
    • Are there any hidden or ancillary fees?

When you’re paying a property manager, you want to be sure that they have your best interest in mind. Working with a highly experienced and professional property manager can change the course of your financial health. You want to reap the benefits of successful property management, and that starts with being aware of how your funds are being allocated. 

Reading Your Property Management Agreement is Important 

As Orlando property managers, we know that reading property management agreements is not necessarily fun or something most people want to do in their free time. Unlike scrolling through a long agreement for an app on your phone, you can’t just scroll through a property management agreement and blindly hit agree.

When handing over your investment property, you’re handing over a highly valuable asset. You want to ensure your property is in the hands of a property manager that will be transparent and trustworthy 100% of the time. Though a tedious task, reading your property management agreement can save you from entering into, and being stuck, in an agreement with an inexperienced or unprofessional property manager.

At The Listing Real Estate Management, your boutique property manager, we have our client’s best interests in mind. We know the importance of providing our clients with all of the information they need, and a successful and prosperous property management journey. 

To get started on your property management journey with the best property manager in Orlando, contact us today or click here to get a FREE rental property analysis. We’re looking forward to working with you! Cheers!

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