Clauses in Agency Agreement - am I unreasonable?

[Ralph]

Hi,

Interested in anyones views on this re reasonable / standards.

Am about to sign up a management agent and they have just sent me through their standard landlord - Agent agreement. I have issues with the following terms they have put in.

1) I agree to take them on for a fixed period of 2 years
2) They can terminate the agreement for any reason by giving 28 days notice - fine
3) I can terminate the agreement for their substantial failure to perform, only if I first give them 28 days to rectify their failure, and if they rectify, then not allowed to terminate them - I can do it immediately if it is a fundamental breach (no definitions on these)
4) If I terminate for any reason, other than the above, I agree to pay them liquidated damages to an equivalent of 50% of the management fee on the unexpired portion of the lease that must be in there to check on my sense of humor.....

5) Pay separate marketing costs and/or expenses - fine (but they do give me the option to agree/disagree. As for the next item, they've crossed out disagree for me!)
6) Pay for their costs of identification in advertisements (required by REIWA to show all their info in adverts) - fine, but it being separate item, and the document having a choice to agree or disagree makes me wonder.

Headline costs are about average for Perth, I believe, condition reports 90+gst, quarterly inspections 45+gst, final bond update 65+gst, inventory report 60+gst but seems like alot of extra's. On top of the 8.5% they also want to charge me $8/month + GST for petties (phone, mail etc. - would have thought the 8.5% should go to this as most months there's nothing to do but pass on the rent).

Charging me for BAD and Bank fees - theirs I suppose.
Credit check fee for each applicant $13 + GST (shouldn't the 2 weeks rent they get for putting in a new tenant cover this?)
To let sign $30 + GST per vacancy

My views on the term and termination clauses are easy, happy to accept a 2 year agency agreement, provided I can terminate at any time for any reason and no liquidated damages. Given all fee's are paid as you go, letting, advertising etc. I have alot of trouble accepting an obligation for liquidated damages.

It seems to me that they have a fee to cover every conceivable cash event and that the letting fee of 2 weeks, the 8.5% management fee and inspection fee's then go purely to cover time.

Annual income to them (not my costs, which are higher) assuming one new lease each year becomes:

Management $1,768, letting fee $800, Inspections $290 = $2,858. If they did one hour per week on the property, every week then they are earning $55 per hour. It's not really unreasonable as an hourly rate when you consider business on costs. But is it unreasonable in terms of other peoples PM experiences?

Appreciate any advice.

Ralph

 

[duncan_m]

Ralph,

What a very lop-sided contract. It seems to be a licence to extract money from you. Your estimation of 1hr per week is extremely generous, its more likely to be about 5mins a week once a tenant is in place. I self-manage my own portfolio that has rental income well over $100K PA and dont even spend an hour on the ENTIRE portfolio. Take to the contract with a pen and ruler and see how much striking out you can do.

I'm bemused by the ever escalating fees and charges that have been invented by PM agencies over the last few years. They seem as effective as the government in dreaming up bizarre new levies and charges.

 

[buzzlightyear]

Ralph,
Can only agree with the sentiments of duncan_m. Current agreements (x2) in place do not have any period assigned for management. Both parties can walk away without any penalties.

Costs are only letting fee (1.5 wk), management fee (7 & 9%), statement fee ($2 & $6).

condition reports 90+gst, quarterly inspections 45+gst, final bond update 65+gst, inventory report 60+gst

This is extraordinary!! Find a thick red pen and start crossing this out. Inspections, reports & bond issues are all aprt of their management responsibilities and should be included in their 8.5% fee.

They sound more like a legal firm the way they charge not a PM.

BAD tax - isn't this now dead?

 

[mitch]

Gday Ralph,

its amazing how many costs you blokes have in WA.

In Vic my costs are 1 weeks rent letting fee and 6% ongoing of the rent , thats it , all other inspections and anything else that they do is included other than a $2.50 fee for statements.

they sure charge alot in WA.

Regards Mitch.

And l dont concider im getting a cut rate service , my pm is very reliable , consistant and does a great job

 

[Kristine..]

Ralph

How many property managers have you interviewed and asked for details of their terms and conditions, fees and charges?

This agency sounds as if they are more interested in counting the dollars first and providing the services second.

Before you spend any time with the editing pen, get quotes from at least another two agencies.

If this is the start of the relationship, Heaven help you in the years ahead. And a Two Year Exclusive Management Agreement? Which non-service orientated person dreamed up that one?

Find an Agency which really wants your business, it certainly sounds as if this agency doesn't.

Cheers

Kristine

 

[likewow]

Ralph,

Good on you for reading the fine print conditions of the contract, surporisingly some people dont.

Thats the most one sided contract i have seen and i wouldnt bother with the red pen. I would file that one in the round filing cabinet and move on. Good luck.

 

[jrc]

Ralph,

Who owns the property? You or them?

I bought a property in nSW a few years ago. I asked the managing agent if they were interested in continuing to manage. They said yes and sent me their terms which probably weren't much different in cost to yours and also included such phrases as "We have improved the amenity of the area etc etc."

I went elsewhere.

 

[Ralph]

Thanks everyone - enjoyed your replies much appreciated

I have checked with two other agencies prior to getting the agreement I'm reviewing and prices are all ballpark. As per other threads on the forum, WA PM's just seem to charge alot more, and to some level I'll have to wear that.

That won't however deter me from having a good go at the costs! and some of the clauses I mentioned which are non-negotiable from my point of view.

The agency was recommended to me by a forum member, so I have some confidence they will do a reasonable job.

If they come to the party on costs and clauses then great, if not.........new party!


Cheers,

Ralph

 

[Jacque]

3) I can terminate the agreement for their substantial failure to perform, only if I first give them 28 days to rectify their failure, and if they rectify, then not allowed to terminate them - I can do it immediately if it is a fundamental breach (no definitions on these)


This sends alarm bells ringing to me! Would be interesting for them to give you a written definition of each of the terms substantial and fundamental! So basically what this gives them is a month to rectify any breach of the MA unless it's a "fundamental breach". Any management company worth their salt wouldn't include such wishy-washy or misleading terms of contract. If this is the way they run their paperwork, then one can only wonder at how good their actual service is.
Good luck with finding another agency and keep us posted of your final outcome!

 

[Ralph]

Thanks Jacque,

Picked up some paperwork from another PM in Perth.............different layout, pretty much the same terms! liquidated damages etc etc.....

Have put a counter proposal to the first PM, see how I go.

 

[Kevin Hockey]

Ralph,

Don't get fixed into any agency for any period of time let alone 2 years.

How much do you expect the property to rent for?

Kev

www.nundahrealestate.com.au

 

[quiggles]

Perhaps you can get some of the REAs on this forum to send you their standard contract (those who aren't already packing their bags for WA ) to give you a better idea of what a management contract should look like.

I'm horrified at the onesidedness of the thing!

Cost vary considerably from place to place, but this is ridiculous - they are seeking employment from you, not the other way round.

 

[duncan_m]

I'm horrified at the onesidedness of the thing!

The biggest complaint I have with the Real Estate Institute of South Australia management contract is that the fact that the Agent isn't actually REQUIRED to do anything with regards to the management of the property.

The contract lists a quite long list of things such as a collecting rent, performing inspections, handle bonds, organise maintenance etc.. but the entire list is prefaced with the words "The Agent is AUTHORIZED to:".. so even if they didnt do anything, they arent in breach of the contract, its a slimey peice of work..

I advise anyone in SA who will be signing an agreement to STRIKE OUT the words "is authorised to" and replace them with the words "IS REQUIRED TO".

Poor quality scan, but here's the offending section (section 4)

This contract is a few years old and REISA have no-doubt updated it.. but I'm sure it will be as insidiously snakeish as this one.

 

[Ralph]

Kevin,

300pw before I landscape and 400 after. The owners are going to rent for 3-6 months and we'll have the rent jump included in the contract.

Still waiting on the reply from the first PM - perhaps they're still trying to see what's left through the red ink!......not holding my breath though.

Cheers,

Ralph

 

[duncan_m]

Management $1,768, letting fee $800, Inspections $290 = $2,858. If they did one hour per week on the property, every week then they are earning $55 per hour. It's not really unreasonable as an hourly rate when you consider business on costs. But is it unreasonable in terms of other peoples PM experiences?

Ralph,

Sorry to revisit this thread.. just had an idle thought

it seems commonly accepted that a good PM can manage 100 properties.. assuming yours is a higher end property for the area, lets suggest that the average PM is managing 100 properties generating $2000pa each.

Thats $200K of income per year per 100 properties..

Assuming a 40hr working week for 52 weeks of the year (2080 hours) then we might be able to safely assume that the going rate for PM services in your area is more in the region of $96 per hour, not $55. ($134ph if your property IS the average one).

So a good PM should be spending no more than 24mins per week on a property.. assuming NO time is spent on developing new business.

 

[Ralph]

Duncan,

Thanks very much, interesting further info. Am now talking with two other PM's about the rental, and tenants are already in and paying rent.

I self manage another property in the area so will hold that as a third option. I could certainly use the extra 3.5k income I'd save by self managing!

Cheers,

Ralph

 

[Puppeteer]

WA management fees are quite high, and all agencies are the same. They defend this by saying that all fees are negotiable, but they rarely negotiate. I've found that some agents are much more negotiable when you have multiple properties. My fees are almost halved, by having 2 properties - go figure.

The initial quote that I got came in at a whopping 27.35% once I took into account all of the fees.

One of the sneaky things that some agents are doing is charging a letting fee of 9.25% of the contract rather than a 1 or 2 week letting fee. This is essentially doubling their management fee. In WA, they are legally allowed to charge a tenant 1 weeks letting fee, and then they sting the landlord as well. Also their management fee is a percentage of all monies received, including water bills, rates (if they pay them) and everything else, so it's not just on your rental income.

I have never come across an agent in WA that includes the inspection reports etc as part of their fee.

All of the agents I've talked to will insist on at least a 12 month lock-in. They say that this is because they find the tenants, and to stop landlords walking off with their tenants. You'll probably have luck changing the contract to reflect some sort of fee for standing tenants if you leave their agency, but unlikely otherwise.

I'd manage myself except that I spend so much time overseas.

 

[duncan_m]

Also their management fee is a percentage of all monies received, including water bills, rates (if they pay them) and everything else, so it's not just on your rental income.

How is this calculated? Surely they just withold rent from the Landlord and use this to pay those bills.. where is the 'recieved' money coming from? Either way how slimey of them..

 

[Puppeteer]

How is this calculated? Surely they just withold rent from the Landlord and use this to pay those bills.. where is the 'recieved' money coming from? Either way how slimey of them..

An example is the water consumption account. If a tenant uses $200 of water, the agency get's the bill, and forwards it to the tenant. Once it's been paid, they add a percentage 8+% to your account and subtract it from the payments that they make to you.

What peeves me off is that they won't guarantee that this bill is paid, so if the tenant doesn't cough up, you are stuck with the bill and any overdue expenses, and if the tenant is compliant, then you get to give them 8% for photocopying a bill and passing it on to the tenants.

It's all paid for out of the rental income that you receive, so essentially they collect your rent, and pass on as little of it as possible to you.

And yes, it's slimey, but worst of all, it's pretty much industry wide over here.

 

[Ralph]

A little bit of sunshine

Well,

After the SRO slugged me an extra 16k stamp duty on settlement yesterday due to an arguable technicality - which I will be arguing......

PM 1 came back with what in my opinion were still largely unreasonable terms (though perhaps not out of the ballpark for WA). Anyway, spoke to another agency that had helped me for free with a rental appraisal back when I was first considering the purchase.

Told them where I was at with the other agent, including the issues I had with the offer. Theirs began largely the same, but this was the outcome:

Management 7% of Rental Income (not water rates etc. a PM1 wanted - wonder if that would have included bond as well )
No termination fee's, 28 days notice by either party.
Dropped their petties from std 12+gst for overseas to match the PM1 8+gst
Inspections are between $5 and $20 cheaper across the board from PM1 (85 opening, 45 closing, 40 ongoing)
They agreed to no let fee from me if I find the tenant (even though I already have a tenant for the property, PM1 still wanted a fee )

Those were the highlights. The PM we have chosen had largely the same standard contract as PM1. However, they looked at the expected rental of $400 per week and on the spot agreed to take 7%. A commercial approach in my view.....and got them the deal.

So, you CAN get better rates in WA, just need to find that elusive PM with a business mind.

Cheers,

Ralph

p.s. only $15,000 left to save and I've recovered the SRO screwing