Urban high streets across Melbourne are populated by what now appear to be our most essential businesses: nail salons, coffee shops, property development display suites and supermarkets.
Between the gel pedicures and the Aesop-filled real estate display suites, there’s another trend that’s emerging more brazenly than ever before: dirt cheap property management. Whether pasted on empty apartment windows, dropped into our letterboxes, bombarding us from billboards or as part of our Facebook feed, it’s not unusual to see property management fees advertised for as little as 3.3%.
If you work in the real estate industry, you’ll probably be disgusted by such a low fee. But if you’re not (and let’s face it, most of the community are not), you won’t intuit much from the advertised fee – you won’t know if it’s high or low, and what value you get for your hard-earned. This deficit in communicating value is a failing of the real estate industry in Australia: they’ve not convincingly told the story of property management, and how it is an expert profession.
As a country, we’ve become intensely price-driven across many industries. Having been drip-fed an insulin-sweet feed of cheap clothes and cheap supermarket shopping, our national lizard consciousness now equates cheapness with value. At the same time, most of us inherently seem to understand that we pay a cost for our cheapness: it’s the obsolescence built into our technology, the fashion tops that look rubbish after three washes, the throw-away culture we’ve engendered. As wages stagnate, the cost of essential services like gas and electricity rise and the median price of housing soars, we look for ways to cut costs in other parts of our lives. It’s an uncomfortable tightwalk we balance upon as our economy shifts.
There are, however, some categories of expertise you don’t want to go cheap on. It’s pretty clear that a bargain basement overseas medical procedure is unlikely to be equal to its more expensive local delivery. Cheapness in professional services is something most of us are wary of, too: we want to know our lawyer, accountant and conveyancer are expert in their field. It’s only the few who are entirely price-driven that pretend all doctors are the same, all lawyers are the same and all accountants are the same – regardless of their level of expertise and accountability.
So why do we not feel similarly about our real estate professionals? Being responsible for the care of our real estate assets is clearly an important role – so why do we think that a cheap property manager will be a good property manager? Aren’t we worried that a business who wins custom courtesy of their cheapness might not be the most legitimate and experienced business? It’s disappointing that the race to the bottom when it comes to real estate fees is often fuelled by real estate businesses themselves.
If you’re an investor attracted by ultra-cheap property management fees, here’s a few reasons to think twice before handing over your precious real estate.
- If you’re not paying much money, YOU ARE THE MONEY.
A real estate agency’s value is based on the only true asset that business has: this is their rent roll. Whilst the public often think sales is where the money is made, property management is where an agency builds its saleable value. There’s no consistency in sales – having six months of outstanding results is no predictor of the next year being a corker. Sales are just the cream on top of property management earnings.
Cheap property management fees are a sure sign of a Principal wanting to build their asset before selling it on. In short: they’re cutting fees to bulk out their property management asset in an effort to raise its value before flipping it. Their focus isn’t about quality service, supporting their property managers to do a great job for landlords or only managing properties in a geographic area that makes sense: it’s just about numbers.
The result for you as a landlord? Prepare to be sold on to another real estate agency, and soon! You’re a number, not a member.
- Which way do you want your property management service?
You can only ever pick two. (I take every opportunity I can to wheel out this clever venn diagram.) Cheapness and speed don’t equal excellence – and when you’re gambling with literally hundreds of thousands of dollars of real estate, do you really want your property managed by an agency who put such little value in their services that they slash their own wages? Probs not.
- The Golden Ratio
There’s a maximum amount of properties that any single manager should be responsible for. It’s approximately 150. In real terms, that’s a minimum of 300 relationships for a competent single individual to manage between landlords and tenants. Do you know how many properties the cut-rate, beleaguered property manager might be handling? Anywhere from 200 to 300 properties. We’re talking about 600 relationships. You don’t have to be a property expert to know that these figures don’t spell quality management. Far better to trust your asset to an experienced property manager handling an appropriate amount of properties. You want them to know you, remember you, call you and know about your weird air conditioner.
There are a bevvy of reasons not to go cheap on yourself when it comes to important services like property management – but these three spine-chillers should do for now. 3.3% management fees? No thanks!
Iolanthe Gabrie is Director of social media agency Ruby Slipper.