Cut-Price Property Management: Dirty Deeds, Done Dirt Cheap

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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?

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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

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The Bloodied Messenger: Property Managers and Public Respect

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The phone would ring three times – the receptionist having told me already that John from East Melbourne was on the line. He was a tenant in a property I’d been instructed to sell, and I hadn’t spoken to him before. As an estate agent, it was my role to inform him that yes, his rental property was going to be sold and that yes, we’d be doing our first open within two weeks. A veteran of these conversations, the response from my tenant went almost uniformly in one of three directions.

“No, I’m sorry I won’t let you in my property. I don’t have to.”

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“I have concerns about security, so I need to be at every open. And I’m at home on Wednesday morning at 9:30 am or Sunday evening at 7:00 pm, so those are the only times I will allow you access.”

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‘The landlord needs to offer me some compensation. Then we can talk.”

In every one of these instances, my first proposed open on a Saturday at a normal time when purchasers could attend went ahead. Principally because as the agent of the vendor I did have the right to enter the property given due notice to sell a home. The landlord doesn’t have to pay any inducement to legally access the home for the purpose of selling – but indeed they may agree to pay an inducement if the home is presented beautifully and with good will.

In retaliation for having done my job as an agent, I have been variously threatened with a knife by a caterwauling tenant in considerable distress, had to speak with police and sign a state dec confirming that I did not steal a computer that a tenant accused me of pilfering. I have had tenants stay in bed farting during open for inspections, leaving bucket bongs in the center of the living room. Prior to an auction, I had tenants involved in a little light latex bondage in their kitchen, seemingly surprised to see me (and thirty enthusiastic auction-goers) pouring in the front door. That was a real doozie, and I called that auction with relish.

Having worked in the real estate industry, I’m keenly aware of both the failings of the real estate industry itself and of the deep disregard for people who work in the industry. Did you know that – on average – every three years 80% of the real estate industry in Australian turns over? When you consider the vitriol aimed at those working in property – in particular, property managers – this should cause little wonder.

When I’m online and see people having conversations about the sheer gall of agents attempting to  having open homes in their leased property, I am often saddened. Our community see property managers as bottom-dwelling halfwits who are attempting to do the wrong thing by them at all times. If they’re tenants, they view PMs as inattentive, unfairly exacting in their standards or stalkerish when following up overdue rent. If they’re landlords, property managers are viewed as unavailable, ill-educated and on the tenant’s side.

Given the lack of community respect for what is effectively a vocation (because they sure as hell don’t do it for the money – particularly in property management), the rapid industry turnover makes sense. Property managers – on average – have a portfolio of 220 – 250 properties which they oversee. This means 500 relationships – those with tenants and landlords – and a mountain of maintenance orders, following up of rent arrears, negotiations between parties with the added frisson of occasional abuse. They are usually overworked and quite stressed out.

I’ve often seen online conversations from ostensibly lovely people decrying estate agents for daring to ask to have an open for inspection on a Saturday at their leased property. Cue a stream of replies about ‘leaving the dishes undone and the house dirty, that’ll teach ’em’ and ‘just don’t let them in, they can’t make you’, and I’m left angered. As a tenant, you are required to allow fair access to your property for the purpose of lease or sale once given notice. Just as the landlord must fix problems with a home once alerted to them, tenants must allow public access to their property at fair times for the purpose of re-leasing or selling. Being difficult and aggressive – by either making the agent fight with you to do what they are both instructed to do and legally allowed to do – isn’t a solution. It won’t make the problem go away. Leaving a home dirty and unpleasant isn’t helpful either – all it results in is more and more opens as it takes longer to lease or sell the property.

Undoubtedly, we need to make changes to property and investment laws in Australia. Annual rent increases, short leases and negative gearing all have a deleterious effect on the relationship and respect between landlords and tenants. The property manager or estate agent is the meat in the sandwich between these oft-warring parties. Instead of working out ways to stymie your 23-year-old property manager from making a fair repair to your investment property or making her feel unwelcome to do her job as legislation supports – think about petitioning to government bodies about the rights of tenants and landlords. We probably need longer lease terms, and longer periods between rent increases – it’s not fair to expect people to move home every year. But until those things are amended, the agents you deal with are following through on their roles in the best way they know how, trying to solve problems and make everyone happy.

And if one thing’s certain in this life: trying to make everyone happy makes no-one happy. So: don’t be cruel. Don’t bully and demean a profession for attempting to do their jobs well – remember, these are property managers are confronted by regular verbal abuse and rental properties sometimes destroyed and defaced by hostile tenants. Allow fair, tidy open for inspections without aggression or violence – they’ll be out of your hair as soon as they can. Equally, if you’re a landlord, make reparations on your property when you need to, and be understanding about what ‘fair wear and tear’ means.

Above all – don’t shoot the messenger.