How to Set Fees in Property Management

You may wonder how to set your fees if you are a real estate agent offering commercial, industrial, and retail property management services. Every property is different, and the requirements of each property management approach should be tuned to satisfy the clients and the property demands.

What is your fee structure and schedule in property management? Forget about ‘standard’ fees and consider ‘specific’ property management fees. Tune your services to the situation and the client.

Property Management Complexities

Commercial property management is a complex and competitive field requiring many skills and expertise. There are different service levels across the property types, given the size and types of the tenancy mix. Add to that the fact that every property is different.

You know your client base and the types of properties that you want to manage. There are different intensities between managing office, retail, and industrial properties. Adjust your fees to suit.

Don’t Set Fees This Way

Your fee should not be based on a fixed percentage of the passing income. Compare the levels and intensity of work you expect to apply to each managed property.

Some properties are property management ‘intense’ and will take plenty of time and control from the start and throughout the year. Choose the right property manager for the job given their experience, and then consider how they will work on a property, given the requirements of the property and the client.

So, you want to charge a fair price that reflects your values, skills, and service approach for the particular property; that fee should also cover all your expenses and provide a profit margin to the business.

One Fee Doesn’t Work

Don’t ‘bulk up’ your management fees into one monthly charge; that doesn’t work for the reasons below. There are different types of fees that you can charge for commercial property management services, such as:

Handover Fee for Property Management

The suggestion is that there is plenty of work to set up a new property management appointment. Charging a ‘set up’ fee for that work and time is fair and reasonable.

It is not unusual for this ‘start up’ fee to be around $2000 as a ‘once off’ fee with complex properties. Remember that you must set up your computer systems, lease administration, maintenance routines, and risk management controls.

Base Fee for Services

This is the percentage of the gross rent you charge for managing the property. It typically ranges from 2% to 10%, depending on the property type, size, location, and condition of the property and the level of service you intend to provide.

Base fees for managing a retail property or shopping centre are usually higher than office or industrial properties. Retail properties require a higher level of property manager input and activity.

Leasing Fees

You charge a commission for finding and signing new tenants for the vacancies as they arise.

It is usually a percentage of the first year’s rent and can vary from 3% to 15%, depending on the tenancy size, the property market and the lease terms.

Consider setting your leasing fee taking into account the number of lease renewals, vacancies, expiries, and tenant changes or relocations across the property.

Tenant Retention Fee

You charge this fee for renewing existing leases with sitting tenants. It is usually lower than the leasing fee and can range from 1% to 5% of the renewed rent.

Many agents create a tenant retention plan for managed properties to retain quality tenants in occupancy for the longer term. The other way to approach this fee is to charge a fee equivalent to 25% to 50% of the normal leasing fee for the premises and lease achieved.

Separate Maintenance Fee

This is the fee you charge for overseeing and coordinating repairs and maintenance on the property. It can be a flat fee per month, a percentage of the maintenance costs, or a markup on the invoices from contractors.

Special Project Fee

This is the fee you charge for managing major property renovations or improvements on the property. It can be a flat fee per project, a percentage of the project costs, or an hourly rate.

Every project is likely to be time intensive and the fee should reflect the input expected or required.

Other Fees for Unique Services

These are fees that you charge for additional services that are not included in your base fee, such as special accounting, reporting, marketing, evictions, inspections, etc. They can be flat fees or hourly rates.

Some property manager activities involving defaulting tenants can be time-consuming. Ensure you have a fee base for that and any legal court attendances.

Fees for commercial property management should reflect not only the services of managing the property but also your experience, reputation, market demand, and competitive advantage.

What About Your Overheads?

It would help if you also considered your overhead costs, including office rent, employee salaries, insurance, taxes, etc. After determining all costs, you should aim for a profit margin of at least 20%.

Given the above facts, and to determine your longer-term property management fees, conduct property market research in your area and compare your rates to those of other commercial property managers.

Do Not Overload Managers

As a special note, don’t overload your property managers with work (buildings or tenants), as it will usually result in poor property management services and controls. You can then loose clients.

You should also be clear with your clients about which services are included in your fees and which are not. You should review your fees regularly and adjust them based on market changes and your performance.

A career in commercial or retail property management is very rewarding and specialised.