Should You Negotiate the Property Management Agreement?
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When building a property management business, it's crucial to have reliable clients who trust you with taking care of their investment properties and helping them turn a profit. However, to stay in business and grow your business, you also need to turn a profit!
To this end, it is essential to have a property management agreement that comprehensively outlines how you will take care of the property with a pricing structure that helps you make a profit for your client and your business. Is there room for negotiations with such a contract? Should you ever negotiate your management agreement? Let's investigate the best approach to help grow property management businesses.
Which Aspects of a Property Management Agreement Could Come Under Negotiation?
When a potential client asks to negotiate the property management agreement (PMA) with you, what terms do they want to discuss? Do they want to negotiate the price or fee structures? Or do they want to debate property manager responsibilities and procedures?
One important thing to remember is that the negotiation of a property management contract is usually about the trust more than the terms. So, if a potential owner client begins the relationship from a stance of not trusting, do you want to pursue a contract with them?
If you have financial wriggle room, it might be okay to negotiate a few minor things within the PMA. However, if the potential client wants to negotiate the pricing or your services in the agreement because they think that they know better than you (as the expert), that does not bode well for a smooth road going forward.
As a property manager, you are a professional. Therefore, a property owner who wants to sign with you should trust you with overseeing their properties as implicitly as they trust a medical professional with their health—and it's unlikely that they negotiate rates for services when visiting their doctor!
When Would a Property Manager Negotiate the PMA?
Some property managers are adamant that they won't negotiate a single element of their PMA. However, others are prepared to concede on select points to build good relationships with clients. Here are a few examples of when and why it could be beneficial to negotiate terms on your property management contract.
- Your prospective (or existing) client wants to pay an 8% commission instead of 9%. They have several properties in their portfolio. Perhaps this is a case of "buy three, pay for two!" While you probably shouldn't give services for one property away for free, since they have so many properties, you can concede a fraction of the income on all of them with a slight reduction in your fee.
- You have a long-time client that continues to trust you with their properties year after year. They're willing to sign a new long-term contract for several years with a slight reduction in your rate as an incentive.
- A new property owner client owns a multi-family unit. Because numerous rent checks are coming from the same building, you might be willing to reduce your fees by 1-2%.
- You might be happy to waive a setup fee if a new client comes to you with a rental property that already has an established tenant.
Keep in mind that if a potential client (or existing owner client) comes to you with requests that significantly alter your agreement, it's okay to say "no." It is rarely worthwhile to lower your fees significantly, change your processes, or make significant concessions simply to keep a client in your portfolio.
Five Tips to Negotiating a Property Management Agreement
So, how should a property management company owner approach agreement negotiations with an owner? In a successful negotiation, neither side will come out as a winner—but both sides are satisfied with the outcome.
1. Be Prepared
As much as an athlete needs to prepare before a race, be prepared before sitting at the negotiating table. Familiarize yourself with the topic at hand, their concerns, and your current contract.
2. Outline the Process
To ensure that all players know what to expect from the negotiations, outline a procedure beforehand. Have clarity on:
- How long will proceedings take?
- Who are the stakeholders?
- Who will sign off on the deal?
With a plan to walk through the contract and talk through potential changes, everyone can feel heard.
3. Enter Negotiations with the Right Mindset
Instead of going in with the mindset of sealing a deal with the most favorable outcome for you, approach the negotiations to glean as much information as possible. A property manager should ask questions that will give you answers to the following:
- What is the end goal for the other party?
- Which points can they not budge on? What are their constraints?
- Do they have other options to pursue if a deal isn't settled?
Understanding the client's situation can help you negotiate an agreement that serves everyone well.
4. Make Concessions that Won't Hurt Your Bottom line
Before you even set out to negotiate, know what concessions you can make. A negotiation is only successful if both parties are content with the outcome. For this to happen, both sides will have to give a little.
5. Get it in Writing
Before you worry about getting the PMA signed, get the negotiation details down in black and white. If you or your client leave the table without a clear understanding of the new terms (or everything stays as-is), there can be ongoing confusion and a lack of trust.
Consistency is Key
There is nothing wrong with negotiating minor details to win new clients and keep existing clients loyal and happy. However, it's crucial to remain consistent with your services and pricing across all clients. Inconsistent service will raise questions about your loyalties and could lead to high client turnover. A property management coach can guide you in implementing suitable standardized procedures and systems across all facets of your company.
In addition, the insight property management coaches offer can help you put processes, personnel, and technology in place, making it easier to offer some flexibility in your agreements without significant impacts on your bottom line!
To Grow Property Management Businesses, Don't Negotiate your Profit Away!
Successful property managers must realize the value of their company and services when working with clients to adjust the PMA. Working with a property management coach is one of the best ways to understand your business and how much you can (or should) give when clients ask to negotiate aspects of their contracts. To learn more about how to grow property management companies successfully, reach out to Real-Time Consulting Services!
Download our free Profit Calculator to pinpoint areas where you might be able to make improvements in your business and increase your profit margin!