Hits: 11134 Nothing stirs up agencies across Australia more than a discussion on property management fees and charges and what they believe the management fee should and should not cover in the overall fee structure. Mindsets differ enormously from Queensland and Victoria - with a heavy reliance on the management fee as the main fee income (up to 85% of total agency fee income), to Western Australia, where a lot of agencies are getting more from their ancillary fees (up to 55% of their total fee income) and are still retaining the highest management percentage (of around 9.35% inc GST) with some of the highest average rents in the country. “What’s the Management Fee for anyway?” Your answer to this question is evidence of your mindset (and probably what state you reside in too). Typical east coast agencies will argue, ‘but you can’t charge for routine inspections or an annual statement fee. What’s the management fee for anyway?' West coast agencies who charge for routine inspections, annual statement fees, ingoing and outgoing inspections (and everything else) will simply shake their head and ask, 'Why would you do it for free?' There is no rule book out there that says what fees and charges must come under a management fee. So the real answer is - it's whatever your mindset says it's for! So how do you get better fees? The Law of the Increased Fee (click here for The Eleven Profit Laws of Fees) is simple. There are two things you need to overcome to be able to add and improve fees. This is for you AND your team. 1. You must first know and believe you are worth it. 2. You must know how to justify your fees. 25 Property Management Fees Charged in Australia: (All fees quoted are inclusive of GST) The following collection of fees and charges come from what we have seen in the past ten years working with countless agencies across Australia in fee maximisation and also from the hundreds of calls made by our secret fee shopper to major capital cities and regional areas. IMPORTANT - These fees are simply what we have observed. We cannot say whether or not agencies have calculated the correct amounts to cover operating expenses and a percentage for profit. Some agencies clearly do not do their sums when they formulate what their fees and charges should be. GST QUOTING WARNING- The Competition and Consumer Act 2010 requires that all fees must be quoted inclusive of GST. For example, if you quote your letting fee as 2 weeks rent (plus GST) this is incorrect! Instead quote 2.2 weeks rent. Quoting 7% (plus GST) management fees is incorrect. You must in this case quote 7.7% (inc GST) for your management fees (as an example). USA ANTI-TRUST WARNING - To USA Brokers and Agents reading this, please note that this guide is focused on what agencies in Australia charge for these fees, and no discussion should be entered into with any other broker or agency in your marketplace (or in other parts of the USA) regarding agency fees and charges, as you will likely be in breach of your anti-trust laws if you do! #1- Management Fee - Percentage based on rent collected. We have seen the odd agency charging a set dollar amount per month, however what we recommend is what the absolute majority does, and that is to charge a percentage of all rent collected (or total monies collected). We have seen rates charged anywhere from as low as 3.3% right up to 9.35% in capital cities and up to 11% in some regional areas. #2- Management Fee - Percentage based on ‘all-monies’ collected. When you are also collecting water expenses from tenants (except Victoria) why not charge the same management fee percentage on all monies collected? Those who ask for a management fee on all monies they collect get it. Those who charge a percentage just on rental income get that. What’s a more profitable mindset to have? #3- Management Fee - Fixed rate per month. Every now and again you see an agency charging a fixed rate per month like $65 or $85 per month, per property. Unless your rents are going backwards we personally recommend that you stick with a percentage based fee so that your management income goes up when the rents do. #4- Management Fee - The ‘All-Inclusive’ Fee. This is when all fees are rolled into one management fee. It’s simple to understand and the owner has predictability of budget as it is just one amount charged. This fee structure can work well if you know how to promote it right. Ensure you calculate this correctly so that you are breaking even on a per property basis (plus your profit margin). Ensure owners are signed up for a minimum twelve month management agreement and also speak with a rent roll broker and discuss with them how this type of fee structure may affect your future rent roll asset worth. Typically we have seen rates in Sydney of up to 11%, up to 14.5% in Melbourne, up to 16.5% in Adelaide and up to 19.5% in Western Australia. #5- Management Fee - ‘Hybrid All-Inclusive Fee’. This is when you charge a lower ‘all-inclusive management fee’ but then charge for some add ons. For example; a letting and internet marketing fee charged separately to the all-inclusive fee. An agency may charge 16.5% to 18.5% for an all-inclusive management fee, but lower this to 14.5% plus a letting fee and internet marketing fee and charge these on a ‘user-pays’ basis. #6- Letting Fee (or Leasing Fee). Every rent roll charges (or should charge) a letting fee every time the property is rented to new tenants. We see anywhere from 0.55 weeks rent up to 3.3 weeks rent charged. However 1.1 to 2.2 weeks rent is the norm depending on your marketplace, mindset and state you’re based in. Percentage based quoting- However in Victoria we commonly see this fee expressed as a percentage of the annual return. For example, instead of stating 2.2 weeks rent you'll see 4.4% of the annual rent return (being approx the same amount as 2.2 weeks rent). The benefit is that it's easier to increase a percentage by a few points than it is to add on a whole half or full weeks rent to the fee. One mistake to watch out for with the letting fee is that of charging half of your rate for a 6 month lease and a full rate for a 12 month lease. Just charge a full letting fee for each letting regardless of lease length. It’s all the same amount of work anyway so you may as well get paid a full fee! #7- Internet Marketing Fee. Including all internet marketing and sometimes also a sign-board to secure a new tenant, we see agencies charging anywhere from zero dollars (common in QLD), $25 right through to $390 per letting (In Victoria). We all agree internet advertising isn’t free and the charges keep going up so why shouldn’t you pass on the costs? #8- Professional Photography Fee. Setting up the marketing for a new property including going to the property and taking quality photos or even paying a professional service to take those photos all costs your agency money and time. We see this being charged from $77 right up to $175. #9- Video Walk-Through Marketing Fee. When properly marketing to reduce the vacancy rate of a property, it’s easy to justify a video walk-through tour fee as a good video presentation easily displays value to the prospective client. Though we see several effective agents doing this type of video, we don’t see anyone charging extra for it. We suggest $55 to $110 per video tour in addition to the letting fee because they are proven to rent properties faster when done correctly. Click here for more information from www.virtuallyincredible.com on how to better use videos in your business. #10- Ingoing Inspection/Property Condition Report Fee. The Ingoing Inspection/PCR fee is being charged by agencies separate from the letting fee, particularly in Western Australia (WA is a property management fee paradise!). Usually charged when a new report is completed for the first time, some agencies are also charging for each new tenancy and update as well. We see charges anywhere from $99 to $220 per inspection. Hint: When you present to a prospective client (using your Listing Kit) how detailed your inspection report is, the variety of photos taken PLUS doing a video of the property, you can easily display the value of what you offer, and so charging for this report (and video) can easily be justified. Click here for more information from www.virtuallyincredible.com on how to better use videos in your business. #11- Lease Renewal Fee. To sign an existing tenant to another fixed term agreement, we see agencies charging anywhere from as little as $25 right up to 1.1 weeks rent. It is common that the lease renewal fee represents half that of the letting fee in Australia. In Victoria we again see this fee commonly charged as a percentage of the annual rent return. For example, instead of quoting 0.55 weeks rent they might quote instead 1.1%, being approx. the same charge expressed differently. And yes - we have seen some agencies charge to sign the tenant onto a non-fixed agreement once the initial fixed-term lease is expired. #12- Routine Inspection Fee. Those agencies who are charging for conducting routine inspections start at $11 and go right up to $99 per inspection. When you calculate that these inspections take up to an hour each (booking them, travel time, doing the inspection, possibly a re-inspection, follow-up repair work, finishing the report and then emailing it to the client) charging for them is not unreasonable! A plumber will charge $80 to $100 to fix a leaking tap (and the owner pays it). You and I agree that these reports can represent far greater value than a rubber washer, and he’s spent less than one hour to perform the service! Although common charges in Australia are $11 to $99, most east coast agencies charge nothing at all. All west coast agencies charge $55 or more. One third of agencies charge this fee in Adelaide at between $11 to $22. #13- Final Inspection/Vacate/Bond Inspection Fee. For the work to vacate a tenant and make the property ready for re-letting, we see charges ranging from $33 to $220. Most commonly charged in WA. Let’s all agree, only 10% of vacate inspections are totally satisfactory on the first look with the rest having few to many complications – often with conflict involved (and sometimes tribunal time too). Next to the letting process, it’s the hardest and busiest procedure, so why wouldn’t you charge for it? We’ll let your mindset answer that one! #14- Tenancy Database Check Fee. This is to check an application against multiple tenancy databases and is usually charged once per letting. We see charges ranging from $11 to $55 per letting. Please be aware however that most state regulators insist that this fee must cover direct costs only and agencies cannot be seen to be making a profit from it. #15- (Monthly) Administration Fee. Charged as commonly as the management fee, we also find that it is one of the hardest for agencies to confidently justify should they be challenged (and they don’t get challenged too often on it). Covering petty expenses like postage (yes, you still have to post regulated forms and inspection notices to your tenant), phone, fax costs and the like. A common mistake that we see is that agencies are still naming this a ‘postage and petties fee’. Owners will now challenge you because their monthly statements are emailed. Also refrain from calling it a ‘statement fee’ as you legally must provide the client a statement each month accounting for how their money has been used. We see this fee most commonly charged at $5.50 per property per month with the lowest fees charged in Victoria of $2.20 to $4.40, but agents in other parts of the country are more commonly charging $11 to $16.50 per property per month. The highest charge we've seen is one agent who successfully charges all owners $22 per property/month in South Australia. When he added this fee this agency only lost one owner in 300 properties! #16- Annual Statement Fee. For the annual summary statement covering the last financial year we see charges ranging from $11 to $88 per annual statement issued. When an accountant will charge $220 to $440 for the same service, this fee is easily justified in light of the alternate cost. We have often heard the argument that it costs nothing to press a button to create the annual statement but that is simply not true. There is expensive infrastructure and a paid trust accounting staff behind ‘the button’. So why provide this service for free? Again, only your mindset can answer that one. #17- Tribunal/Court Attendance Fee. To attend tribunal or court (depending what state you’re based in), including travel and preparation time, we see fees charged from $55 to $165 per hour to a maximum charge of $450 (for maximum time attended). We have also seen this charged at a fixed cost of up to $250 per visit, plus costs. Comment on hourly rates: When your cleaner and gardener charge $30 to $50 per hour, the handyman $50 to $70 per hour, plumbers and electricians $80 to $100 per hour and a geek to fix your computer up to $150 per hour, why should we, as agents charge any less per hour? Are we not worth it? When agencies are managing and are responsible for tens of millions of dollars (some agencies hundreds of millions of dollars) worth of other people’s real estate assets, with all of the risk and responsibility involved, why do we think we should charge any less per hour? What do you believe you are worth? What is your mindset on this? #18- Furniture Inventory Fee. If you’re dealing with furnished properties and inspecting furniture, cutlery, crockery and the like, you should be charging for it! Commonly charged at an hourly rate of $55 to $165, fees vary from agent to agent like they do with other hourly rates. However the odd agent does charge a fixed rate (for example $220 per inspection whether a 'move-in' or a 'move-out'.) #19- Insurance Claim Processing Fee. To process/assist with landlord insurance claims we see $55 to $165 per hour being charged. Also at fixed costs of up to $250 per claim. This fee is one of several that serve as a disincentive for the landlord client, encouraging them to handle this aspect of their investment themselves rather than asking the agency to do it for them. See ‘The Tribunal/Court Attendance Fee’ for our comment on hourly rates. #20- Payment Disbursement Fee. This fee is charged for the arranging of payments to creditors and varies from $2.50 to $5.00 per disbursement or payment made on their behalf for things like water, council rates, repair work etc. #21- Special Payment Fee. When owners request to receive their rent money outside of the normal payment cycle, we see up to $22 being charged for the privilege. Again, another disincentive fee to encourage owners to stick with their usual payment cycle. #22- Repairs and Maintenance Fee. This one is rare, but the few agencies I see charging this fee have no problem justifying or getting it. Charging a percentage of the tradesperson’s tax invoice - we see anywhere from 5.5% to 11% of the total invoice charged, capped at $55 maximum (as an example). The key to this one is knowing how to justify it to your owners. When you know how, you can do it! #23- Renovation Fee. Another disincentive fee, this will either be charged as a flat rate or as a percentage of the total value of all work involved. When the owner says, ‘Can you please arrange for the renovation of my property?’ you can now reply with a smile, ‘Yes Mr. Smith, we can do that, and the fee will be…’ #24- Rent Increase Fee. When rents are increased due to market conditions, this fee is a percentage of the annual increase. For example, the rent is increased by $10 per week. Over a year this is an increase of $520 for the owner. Your fee charged might be 10% of this increased rent amount. #25- ‘Outside of Normal Duties’ Fee. The best disincentive fee of all! When the owner asks you to do a routine inspection outside of business hours, requests that you supervise the valuer from the bank, or provide some other service that is outside your normal servicing, now you can say, ‘Yes Mr Smith, this is outside of our normal duties and we will need to charge $X’ Charged at an hourly rate or fixed cost is up to you, but price it as a disincentive. Hopefully you won’t need to charge this fee…ever! You must get something signed before changing your charges! Just remember that you cannot change or adjust any fees with your owners unless a new management agreement is signed, or if you are able to use a management agreement addendum in your state. Please do not adjust your fees with current owners without also getting some guidance, advice or training on how to do this with a minimal amount of damage occurring. You only get what you believe your services are worth - no more! Naturally there are (in general) market restrictions surrounding what can be charged, however the greatest barrier to healthy fees is found in our own beliefs. If your mindset is saying that new fees or increasing current fees cannot be done, then it will not be done! You only ever get what you believe you’re worth and no more! What is your service worth today? Only you can answer that! Go for it and all the best!