10 Essential Ingredients of a Property Management Agreement

The wise investor has a legal real estate management agreement written to cover all the areas that may cause disputes. The investor and the management company should negotiate any areas they feel problems might arise. Commercial properties will have different points that need to be considered from a residential property. Each agreement will list the key points important to each party.

A management team can be any number of services provided by the manager. The owner needs to have all the necessary services included in the managers compensation. If they are not listed in the agreement the manager will often charge these as additional services. The reputation of the manager and their ability to perform are key elements when the investor selects a manager.

There are several key points that should be included and negotiated in your real estate management agreement .

1. Independent contractor status of the manager. The manager should not become an employee of the owner. As an independent contractor, the owner is not responsible for withholdings and tax obligations on the managers pay. The duties and responsibilities of the manager should be established from the beginning. The owner should interview prospective managers and get outlines of the services they offer.

2. The fee. Is the manager fee a percentage of rent collected or a flat fee? What is included in the normal services? What is charged an extra fee? Is there a fee for extra showings? Do evictions cost beyond the legal fees? How much is the fee? The fee should be clearly stated in the agreement and understood by both parties.

3. Employees of the manager. The real estate management agreement should clearly outline what employees the company will regularly employ. The contract will state if they will be full or part time and if the manager lives on site or off.

4. The contract should state who would actually be handling your property. One person should handle your property all the time.

5. How is the fee collected? The real estate management agreement should point out exactly how accounts are set up for the compensation of the manager and the employees.

6. Detailed information on how rents are collected and bills paid. Will money be put into a reserve account for the managers use? How are excess funds used? What about emergency repair costs? How will they be handled?

7. Outline the types of advertising the company will use. What is the role of the manager in the leasing effort? What forms of advertising do they use? What is the cost? Both parties should decide if they need advertising and how often. The owner will have final approval of all advertising including brochures. The manager is in charge of getting the advertising produced. All material should comply with truth in lending policies, fair housing, ADA and handicap access laws.

8. How will monthly reports be handled? What reports are sent?

9. Termination clause. A well drawn real estate management agreement provides the grounds for termination by either side and renewal rights of any party. The grounds for termination should be clearly stated.

10. Conflicts of interest. The owner should be alert for any deals the manager for his own purposes such as purchasing services through a related company. They should also note when the management accepts management or leasing on other projects that can compete with the owners. These can cause possible areas of conflict.
An investor should have a legal agreement made to outline all possible problems when hiring a manager.

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