Imagine that you’d hired a defence lawyer… but you later find out that this lawyer is also earning money from your rival. That would be an outrage! It’d be considered totally wrong and immoral.
Yet this situation of two opposing parties paying the same person is all too common in the property management industry. How? Because as well as the property manager receiving a commission from the property owner, many managers also receive income from tenants in the form of letting fees.
Why letting fees create disloyalty
Letting fees create disloyalty. Why? With one letting fee often providing as much as 25% of a property manager’s income from one property, it’s quite a substantial amount.
And this disloyalty tars the whole relationship between the property manager and the property investor. This disloyalty may show itself in a couple of ways:
1. Quality of tenants
The higher the tenant turnover rate, the more letting fees the property manager will make. So the property manager is more likely to take on sub-standard tenants, rather than quality tenants that look after your property.
Tenant quality issues could simply surround a string of short term tenancies. One of the key issues here is that short term tenants are less likely to care for the property as if it were their own home – after all, they will be moving on in six months.
The very concerning aspect is the important tenant application process where credit checking and character references are central to protecting the owner’s interests. Credit checks will be undertaken and references sought on the preferred tenant applicant prior to discussing the tenant recommendation with the property owner. If the above results can be successfully presented to the property owner, then the property manager will receive a letting fee payable by the tenant. This is the crucial point where the property manager’s income for the year (on that property) will increase by 25%, just by getting sign-off on their recommended tenant.
This is a little bit like a recruitment consultant being paid by the job applicant: of course, this would never happen in the real world. The recruitment consultant would never dream of being paid by the job applicant because they are working for the client (i.e. the job applicant’s ‘future’ employer).
2. Accuracy of property inspections
With the property manager earning money from both parties, how can you be sure that the property inspections will be thorough and accurate? Maybe the property manager will “go easy” on the tenants, feeling an obligation towards them? With such disloyalty, it would be hard to trust a property manager who charges letting fees.
Yet so many property investors make the mistake of ignoring letting fees
Because letting fees are paid by the tenant, many property investors don’t stop to think about the hidden costs of these letting fees. And so they end up entrusting their valuable investment to someone who doesn’t really have their best interests at heart.
Make sure you find out what your property manager’s hidden costs are!
Before you engage a property manager, be sure to ask them if they charge letting fees. And if they do, don’t walk away – RUN!
Or if you’ve already rented your properties through a property manager who charges letting fees, then switch over to a new property manager who doesn’t charge these fees as quickly as you can. Switching is easy: you don’t even have to speak to the current property manager again if you don’t want to.
Just like you wouldn’t put up with a lawyer who’s acting for your opponent, don’t put up with a property manager who does exactly that.
If tenants have to pay a letting fee, they will often barter for a lower rent. Find out more →