Are you looking to hire a property management provider to handle the day-to-day operations of your rental property? You'll want to understand your property manager's duties and responsibilities, and the Property Management Agreement or PMA will outline these items and marry you to your new manager. When signing any contract, it's always smart to consult your attorney. But understanding your Property Management Agreement will help in your rental property's success and strengthen the relationship you have with your property manager. In this article, we will cover what to look for in your property management agreement, what you'll see in most property management agreements. And what to avoid as a landlord and rental property owner.
TERM: How Long Are You Bound To Your Property Management Provider?
It is essential to know the Term or length of the property management agreement. Working with a property manager and a quality Orlando property management company is crucial to your success. You need a sense of trust, reliable communication, and an understanding they are looking out for your best interest. Understanding the management agreement term and length is essential. They say you date your Realtor, but you marry your property manager. So understanding how married you are to your manager is a must. Some companies require a 12-month management agreement that requires a 60-day written notice of cancellation, and if terminated, will charge you $x.xx amount for doing so. At The Listing Real Estate Management, we see this as holding rental owners hostage. Because if their service sucks, your stuck. If a property manager is confident in their service level, they shouldn't feel the need to lock their owners in and charge them for leaving. Others may have a 12-month management commitment but do not charge a termination or cancellation fee; some require a 30 day notice others require a 60-day notice. As a Landlord, double-check to see the Term Section of your Property Management Services Agreement.
MANAGEMENT AUTHORITY & RESPONSIBILITIES: What are you authorizing your property manager to do? What Are Their Responsibilities And What Authority Do They Have?
This section will typically cover or outline the maintenance reserve threshold and detail the manager's authority to authorize maintenance repairs at or below the threshold without owners' authorization. Some responsibilities outlined in this section include items such as rent collection responsibilities, lease & contractual negotiations, accounting standards, security deposit procedures, trust accounting, advertising outlets, serve legal notices, etc. Read this section carefully, and be on the lookout for Power of Attorney or POA. POA is typically in property management agreements where the managers sign the lease on behalf of the Landlord. Which helps streamline the leasing process and protect owners from themselves.
LANDLORD'S REPRESENTATION OR DUTIES TO PROPERTY MANAGER: Your Duties As A New Landlord With A Property Manager.
Whether you are a seasoned Landlord or First Time Rental Property Owner Hiring a Property Management Company, it's essential to know that your property management provider does require some duties and responsibilities from you. And I know what you may be thinking. Aren't I hiring a property manager to do all the work? And for the most part, yes. However, there are duties and responsibilities you do not want your property managers to handle on your behalf. For example, as a rental property owner, you need to continue paying your mortgage directly if you have one, taxes, HOA dues, and insurance. Leaving this duty in the hands of your property management company could be a recipe for disaster. If any of those tasks are missed, your home will be at risk. Get these items set up on autopay under your name. This way, you know payments are being made on time every time.
PROPERTY MANAGEMENT GUARANTEES: Are They Visible In Their Property Management Agreement?
Most reputable property management companies will have some guarantee for the services they provide, for example, here at The Listing Real Estate Management. Our 12-Month Tenant Guarantee reassures our owners of the quality of tenants placed in their rental property. Meaning 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. Other management companies may offer an eviction guarantee in which they will cover the cost of eviction if one is needed. The issue with this guarantee is that an uncontested eviction in Florida will cost around $500, not including the court costs of the filing fee, service of process, and the writ of possession if necessary. Total roughly $735 to $850 uncontested. However, once the tenant is removed, they will charge the property owner another tenant placement fee, typically 75% - one full month's rent if your rental property is anywhere near the Great Orlando market's average rental rate. You’ll be paying more for the new tenant then for the cost of the eviction.
Other guarantees to be on the lookout are a 14-day lease guarantee or leased in X amount of days or two months management free. On the surface, this sounds like a great guarantee, like wow, you rent homes so quickly! However, the downside to this is that the manager doesn't care whom they place in your rental property. They want to fill it with anyone, quality vetted tenant or not. Collect their tenant procurement fee and move on to the next one. Anyone can quickly fill a rental property with a tenant, but it's more about the tenant’s quality. Then how quickly you get someone in the home.
When reviewing your property manager's agreement, however, many guarantees they pitch you right away. Review the property management agreement carefully and make sure those guarantees are in there. Companies can say they have this guarantee and that guarantee, but if it's not in their PMA, it's more of a sale gimmick than anything, so look for the guarantee in writing.
MANAGEMENT COMPENSATION: What Are You Being Charged?
It's essential to clearly understand the costs associated with hiring a property management service provider. This clause should be easy to find. Does the manager clearly show their cost structure? Are they charging on a percentage basis of a flat fee? Do they charge a lease renewal fee? What is their leasing fee? Do they hidden fees or ancillary fees associated with their management? These should all be outlined in their PMA (Property Management Agreement). In Orlando, each property management company will have its own Orlando property management fees, so it is essential to know what you will be charged. You can see our Orlando property management pricing and what services are included. Transparent and upfront pricing is what you want to look for in your property management search. Ask questions and carefully review the compensation section of their agreement.
Indemnification or Hold Harmless Clause & Liability Insurance Requirements for your Rental Property.
At this point in your PMA, property management agreement reading, you may be getting pretty bored with all the legal jargon. To add to it, you will likely come across the Section header Indemnification or an Indemnity, Hold Harmless Clause. As your eyes begin to glaze over, you may be thinking, what does Indemnification evening mean? Well, Indemnity is defined by Black's Law Dictionary as "a duty to make good any loss, damage, or liability incurred by another." Indemnity has a general meaning of holding one harmless; that is to say, one party holds the other harmless for some loss or damage. The Indemnification protects one party against damages and expenses caused by the other party's failures and mistakes. Your manager will also require specific insurance coverage needed for your rental property, Liability Insurance. Meaning you as the landlord must supply them with the declaration page with liability insurance coverage of not less than $100,000/$300,000 per occurrence. The manager shall be designated on the said policy as an additional insured, if possible. Most insurance providers will have no problem adding your property management provider as an additional insured. Liability Insurance will protect you in the event of an injury occurring on the property.
Landlords, Don't Fall Asleep! Final Thoughts Regarding your Property Management Agreement.
Reviewing the property management agreement is a tedious task, especially if you are shopping around. But trust, responsiveness, reputation, and character are the keys traits to be looking for in a property management provider. The property management agreement protects all parties and provides a detailed understanding of the property manager's duties and how your rental property management will operate. Most reputable management companies will not change their property management agreement at all for you, and they rightfully shouldn't. There is a reason every line is in that management agreement, and each one serves a purpose. If they have a line item, you are unsure about or concerned about a specific clause, ask them what it is and why it's in there. They will be happy to help clear up any confusion. If you have any questions or would like to learn more about The Listing Real Estate Management, please don't hesitate to reach out. We are a full-service residential property management company located in Orlando, Florida, serving landlords and tenants throughout all of Central Florida.