If you hired a lawyer to defend you then found out that they were also being paid by your opponent what would you think? Right, it would be totally unacceptable and immoral of them. Letting fees can be considered in a similar way as a property manager is earning commission from you whilst pocketing a letting fee from the tenant – in other words working both sides of the fence.
Letting fees are tantamount to disloyalty
How is this? Well the more times the property manager rents to new tenants the more income they earn – possibly up to 25% of the amount they receive in commission from the property owner on the rental property. How is this disloyalty shown? Given below are a couple of examples.
1. Tenant Quality
The more times the manager can rent out the same property the more money they will make in letting fees. It’s quite possible, therefore, that the quality of tenants will be sub-standard rather than the A1 tenant a property owner would wish for.
Short term tenants are much more likely to leave the property in a worse state than when they moved in simply because to them it’s a temporary home and this is one of the main drawbacks to short term tenancies.
Character references and credit checks are an essential part of the tenant application process to protect the property owner. These will be done prior to acceptance of the tenant by the owner but the way these results are presented to the property owner may be manipulated by the manager in order that the tenant they want (one who will pay the letting fee) will be accepted by the owner, thus earning the manager their bonus fee.
In comparison this is similar to a recruitment consultant being ‘bribed’ by the job applicant. This would be completely unethical of course and a consultant would not dream of doing this when the client is fundamentally their employer and the applicant would be a future employee of that client.
2. Property Inspections
If the property manager is gaining income from both the owner and the tenant how thorough will his inspections be? With divided loyalties it is quite possible the manager will not be too hard on the tenant when doing his inspections possibly causing deterioration of the property, especially when the manager desires short term tenants to get their letting fee.
Many property investors will ignore letting fees which is a mistake
As letting fees are not directly coming out of their pockets many landlords ignore the hidden cost to them of this practice. If they want to earn maximum income from their investment it is not a good idea to entrust their properties to managers who may have divided interests.
Hidden costs of a property manager
One of your first questions before hiring a property manager is to ask if they charge letting fees – if the answer is yes then that should be the end of the conversation!
If your current property manager does charge letting fees we would strongly suggest that you find another one pronto! To switch to a new property manager is simple, if you don’t want to speak to your current manager again you don’t need to.
You wouldn’t continue to employ a lawyer who is also working for your adversary, nor do you need to keep employing a property manager who does the same thing.
Barry Bridgman has been managing his own investment property portfolio for 25 years. During this time, there has never been any occurrence of rent defaults or property damage and Barry’s goal is to achieve the same for your property. Bridgman Property Management is based in Auckland Central, where Barry has lived for more than 18 years.
