So you’ve found a great property manager and now it’s time to move forward with the property management contract. The question then becomes: what should you look for in the property management contract? Even if the manager is reputable, there still may be some points in the contract that do not suit your current needs. Don’t be afraid to scrutinize the contract and ask for changes that you feel are important.
Full disclosure: I am not a lawyer and this blog post should not be used as legal advice in any way. A property management contract is a legal document. Always consult your attorney and/or advisors before signing any legal documents.
Here are some items that you should look for in a property management contract.
1. What is the duration of the contract? You might not want to be locked into a long-term contract, especially if you’re not familiar with the property manager. In that case, it’s probably best to start with a shorter-term contract. Once the manager has been established for a while, and your confidence has grown, subsequent contracts can be longer term.
2. Be sure that the services and the fees are spelled out clearly. Upon selecting the property manager, you probably received a verbal quote “10% of the gross rent” or something along those lines. The full contract, however, is much more complicated than that. The contract should spell out exactly what services will be performed by the manager, and at what expense. Some managers may charge for “extra management duties” which were not spelled out in the verbal agreement.
3. Be sure that the agreement specifies Equal Housing Opportunity. You don’t want to run afoul of fair housing laws. Your property manager should be well versed in fair housing laws and operate in accordance with those laws. If your property manager is acting as your agent then you could potentially be liable for the actions of your property manager. This should be spelled out in the contract.
4. Check the termination clause. In case either you as the owner or the property manager wants to terminate the relationship early, the terms need to be specified clearly in the contract. In your case, ensure that the contract does not require cause to terminate the agreement, and that it can be terminated without penalty.
Property management companies can be a wonderful resource for real estate investors. Contracts between them and the property owners, however, should be examined with scrutiny to ensure that the interests of both parties are protected fairly. As with any legal documents it is always a good idea to consult your attorney and or advisor and have them take a look at the contract.