The Property Management Malaise
The standard business model of property management departments isn’t functioning effectively and needs to be changed.
Property Management has always been much maligned by all stakeholders. Many owners and tenants are not happy with their property manager. They are quick to point out their many deficiencies. Lack of communication, failure to return phone calls, not acting on requests, insufficient or inadequate routine inspections and basic administration errors are some of the more common complaints.
Property managers themselves feel overworked, highly stressed, unappreciated and underpaid. I know – I’ve worked in this area and include it as part of my business.
Most young real estate hopefuls begin their career in the property management department and if they display enough motivation and talent they then progress to the sales department. Property management has always been considered the less glamorous department in a real estate office.
This is because property management is a continuous slog that revolves around the endless streams of paperwork that is now required. A key performance indicator of a property manager is how quickly and accurately they can execute document after document after document.
The constant stress due to work overload is leading to many leaving the industry. This high staff turnover and resulting loss of knowledge is affecting the overall quality of service as an incoming property manager knows nothing about the properties he or she is looking after, nor the individual circumstances of the owners and tenants.
Property managers are the meat in the sandwich between owner and tenant. Owners would prefer not to spend money on maintenance items; tenants want quick action if something isn’t working. Tenants want to pay as little rent as possible; owners want as much rent as possible.
Property managers have to endure the resulting barrage of negativity that results from these competing interests.
What most of the general public are not aware of is the relentless pressure property managers have to endure on a daily basis. It is an industry standard that one property manager will be in charge of between 100 and 200 properties. To give you some perspective of this workload: I once assisted managing just 25 properties and at times felt like reaching for the whisky bottle to cope.
There are several reasons why most property management departments don’t function effectively. The most obvious is that the number of properties a property manager is required to oversee is too high and therefore it is impossible to service them all effectively. This results in little or no follow up with regards to maintenance matters, paperwork etc.
Secondly, most property managers receive little or no regular training. Property management requires skill and knowledge across a wide range of subjects. These include being an effective mediator and negotiator, having knowledge of real estate and building regulations, being able to identify and organise rectification of maintenance issues, and having an eye for detail in relation to the many forms and documents that need to be completed.
Sadly most property managers just don’t have the necessary time or skills required to carry out their jobs effectively. The reality of this scenario is that property owners are required to be proactive in overseeing the management of their property. This is particularly the case in the areas of general and preventative maintenance.
The blame for this property management malaise falls squarely on the shoulders of the directors of real estate businesses. A primary objective of most directors is to obtain a management listing – even if that means discounting heavily to obtain it.
This strategy is implemented because if an owner decides to sell there is a higher probability they will engage the services of the real estate office that is currently managing the rental. The possibility of earning a substantial sales commission looms large. Also, each addition to the rent roll increases its value as an asset for sale.
Real estate offices are primarily sales orientated. Most real estate directors operate in the sales department and therefore place a high priority on obtaining sales commissions.
On the surface this strategy may appear sound however it is fundamentally flawed. In reality this penchant for charging low management fees in order to obtain rental listings has a negative impact on the entire business and is the reason why most real estate businesses struggle.
The average management commission is around 7 per cent; some will even discount to 5 per cent. This equates to a meagre monthly commission of approximately $85 per property. Also, many property management departments perform work that is outside their responsibility and don’t charge for it. The implications of accepting such low management fees are that property managers are substantially underpaid.
The average salary of a property manager is between $35,000 and $45,000 per year. This makes it difficult to attract quality applicants and it certainly doesn’t induce them to remain in the position taking into account the workload and demands.
Low salaries attract inexperienced and unqualified property managers. This in turn results in sub- standard work that frustrates both owner and tenant. This is all bad news for the real estate business as the end result is a damaged reputation which affects the whole business including the sales department.
When an owner is looking to sell or a tenant becomes a vendor in the future, they will not forget their bad experiences and are unlikely to engage the services of a real estate firm who failed to look after them well. Continued poor service can also result in a property owner taking their management business elsewhere.
In a nutshell, the desired outcome of discounting management fees to obtain more properties and consequently more sales listings has backfired.
The solution to the property management malaise is twofold. Firstly, fees should be increased so that staff are paid commensurate with the skills and responsibility required. This would help attract and retain a higher calibre of candidate who is able to effectively deliver a quality service. Secondly, regular training should be implemented to keep standards at a high level.
The key to obtaining sales listings is an effective property management department. The ramifications of bad service in the property management department will impact the sales department; they are not mutually exclusive.
Expecting untrained, inexperienced junior staff to manage properties that can be worth millions of dollars doesn’t make sense. This scenario will only damage the reputation of the entire business.