Property Management Fees

Property Management Fees refer to the amount paid to property management firms in exchange for maintaining a property. The fee can be charged either monthly or periodically. It is typically calculated as a percentage of rent collected monthly at a pre-determined rate based on various factors.

These charges are levied for overseeing properties, whether commercial or residential, and they include all the activities of control, maintenance, and operation. Property management companies levy them for rental collection, filling vacancies, maintaining positive tenant relationships, repairs, coordinating maintenance, and other services offered.

Property management fees are charges for services offered to maintain a property. Owners hire property management professionals or companies to take care of their properties as they are unable to do that themselves. These individuals or entities serve the requirements of property owners for a charge, encouraging efficient management and maintenance of the property by the professionals involved.

When determining the cost of property management fees, property management entities consider several factors, including property size, demand, location, etc. In addition, the complexity of the management systems and the amenities provided also influence the charges. Hence, the average property management fees largely depend on a percentage of the rental income. The rates can also come as fixed monthly payments. 

The managers are paid to deal with both the owners and tenants. They handle the responsibilities of marketing vacancies, finding suitable tenants, screening them, and setting competitive rental prices. They also handle repairs and maintenance, collect rent, etc. They also perform additional client eviction duties as per agreed terms. Hiring such professionals for a price is advantageous for both the company and the owners. 

The company obviously profits from a business point of view. The owner encounters benefits, such as hassle-free maintenance, reduced tension of finding tenants, and collection of rent. The arrangement helps provide the owners with a continuous cash flow. It helps them in financial planning and investing accordingly. For those who own properties to make passive income, property managers help them save time by handling everything on their behalf. 

The fees charged for property management exist in different forms. Some of their types are mentioned as follows:  

#1 - Onboarding Fee

An onboarding fee or set-up fee covers the cost of the initial inspection, paperwork, portfolio book review, etc. It is typically paid only once.    

#2 - Management Fee

The average property management fee typically ranges between 4-12% of the rent paid on the property. These could be monthly and can vary according to the property's location, units, size, quality, or the conditions of the property and the prevailing market trends. This charge covers housing inspection, rent collection, late rent fees, and emergency maintenance and repairs. The fee could be billed or deducted from the tenant's account as per pre-determined terms. Sometimes, a flat rate of a certain amount monthly can also be claimed.   

#3 - Leasing Fee

A leasing fee is charged to a property management company for finding tenants. The charges typically range from 50% to 100% of the first month's rent. The fee may be charged every time a new tenant is needed.    

#4 - Maintenance Fee

Maintenance and repair fees include expenses for cleaning, inspections, maintaining, repairing, and restoring items or services. The rates per hour or job requirements and the minimum billing time are covered under this category.   

#5 - Sales Commission

Property management fees may include a percentage of the sales made. The rates typically range between 1% and 3%.   

#6 - Other Charges

• Advertising charge levied for marketing the property. This may range from $100-$200. 
• Some management companies may charge vacancy fees for maintaining a vacant property. This fee must be paid only if it is mentioned in the contract. 
• There are ease renewal fees and eviction fees that must be paid. They apply to the tenant's renewal of the lease and to the management company's initiating of the eviction process against the tenant, respectively. 
• Furthermore, an early termination fee is also charged for contract termination before the due date. 

There are a variety of factors that impact typical property management fees charged for managing properties. Let us check them below:

• Property type: One important factor is the type of property. A multifamily property with less space may call for a lower fee than the management of an individual house spread across a larger area. Properties can be classified as single-family or multifamily homes, rental houses, apartment complexes, etc., and accordingly, the fee might vary.
• Size: The size of the maintained property also influences the rates.  The square foot size, number of bedrooms, available amenities, and the number of units to be maintained influence the charges.  
• Market trend: Different trends will prevail at different times. This means that the most popular house models at a specific point in time are found to be the most sought-after, raising the demand for such properties. As a result, the rent or maintenance fee, according to the feature, also increases along with the increased demand. 
• Location: The location of a particular property also influences its management costs. The fee charged for maintaining properties in neighborhoods with high rent defaults and higher eviction rates typically leads to higher maintenance charges.   
• Property condition: A dilapidated property requires more maintenance than one in sound condition. As a result, the management fee for such properties is higher, as the professionals and companies involved have to put more effort into maintaining them properly.   

Let us look at some of the examples to understand the concept better.

Example #1

Suppose George and Stella are looking for property management services and approach Dan, the owner of property management firm ABC, at the same time to manage their three-bedroom apartments. Though the number of units in the house model was the same, the fees that Dan charged for managing both were different, given the influence of other prominent factors.

George had a brand new three-bedroom apartment made of wood in a high-demand area with a pool and garden that possibly required more maintenance. However, the rent expected from such a property was high, which made Dan demand a higher amount as a fee. On the other hand, Stella's apartment was located in an area that was not very developed and had no pools or gardens. Plus, her place was made more concrete. Hence, Dan decides to keep the fee for Stella's house less.

This example indicates how property management companies determine their fee for each kind of property they handle.

Example #2

The Federal Trade Commission (FTC) has taken action against Invitation Homes, a property management company, for deceiving renters. In September 2024, the company was charged $48 million as settlement money after it was found charging junk fees, employing unfair eviction practices, and withholding security deposits.

The company also failed to inspect tenant homes before they moved in and concealed its leasing prices.  It had even pursued eviction proceedings even after people moved out. Besides paying the settlement fee, the company has been asked to disclose its pieces and policies clearly. They are also required to discontinue any other unlawful actions.