All-inclusive versus fee-for-service property management
We explain the difference between an all-inclusive property management fee, a fixed fee property management fee and a fee-for-service property management fee along with the various negatives and positives of each.
All-inclusive/Fixed Property Management Fee.
An all-inclusive management fee means that property owners are charged an all-inclusive rate that cover’s everything to do with the day-to-day management of a residential property. Generally, it will be charged as a percentage of total income on the property.
At the start of the management agreement, the agency and owner may agree to fix the fee, which is effectively the same as an all-inclusive fee, meaning there are no additional fees in the day-to-day management of a property.
Benefits of an all-inclusive include being able to accurately forecast the cost of a management with no surprises, which assists in cash flow from month to month, it is also more transparent and can be easily reconciled, for example an owner can easily calculate the total cost of a property manager.
Fee-For-Service – Property Management.
A fee-for-service property management fee means an owner is charged a base rate, i.e. a management fee based on total turnover (will be lower than an all-inclusive fee) and then charged additional fees for each service as and when it is provided.
For example, your management fee may be 5% of total income, however for each inspection you are charged $66.00, given there are four inspections per year, in total you will be charged and additional $264.00, once each inspection is carried out throughout the year.
The benefits of fee-for-service include being able to select what services you wish to conduct yourself, which can save you money, it also itemises out exactly what is conducted and at what time at your property.
A negative is that you cannot as accurately project the cash flow of your property, for example you may have an inspection in one month but not the next, so the cost of managing will vary from month to month.
Potential services that can be charged are:
A property condition report
A final bond inspection fee
An in-going inventory report
An outgoing inventory report
Routine inspection reports
Meeting attendance fee
Lease renewal fees
Rent review fees
Annual financial summary fee
Tenant enquiry fee
A postage and petties fees
All these services will be stipulated in the management agreement and will have an agreed cost which you can negotiate, so there won’t be any surprises. An agent cannot charge a fee without authority.
Costs that will arise that sit outside of an all-inclusive fee and fee for service arrangement include leasing and marketing fees (to get you property leased initially) and court costs. However in both circumstances the fees will be agreed at the beginning of the management agreement and you can arrange to have any potential court attendance cost capped with your agent.
There are pro’s and con’s to both and it really depends on the circumstances, for cash flow forecasts and knowing what you will get month in month out, the all-inclusive is the best, for owner’s that want to know exactly what and when a service is being charged a fee for service is best.