The Management Plan
Property management begins with a management plan prepared by the property manager. A management plan outlines the details of the owner’s objectives with the property, as well as what the property manager expects to accomplish and how, including all financial objectives.
In preparing a management plan, a property manager analyzes three factors:
- the owner’s objectives,
- the regional and neighborhood market,
- the specific property.
Occupancy, absorption rates, and new starts are critical indicators. The plan also includes a budgetary section on sources of revenue and anticipated expenses.
The Management Agreement
The first step in taking over the management of any property is to enter into a management agreement with the owner. This agreement creates a general agency relationship between the owner and the property manager. It defines the duties and responsibilities of each party. It is also a guide used in operating the property as well as a reference in case of future disputes.
Like any other contract involving real estate, the management agreement should be in writing. It should include the following:
- Description of the property. This should include the street address of the property as well as the legal description.
- Time period the agreement covers. This would include specific provisions for termination.
- Definition of the management’s responsibilities. All the manager’s duties should be specifically stated in the contract. Any limitations or restrictions on what the manager may do should be included.
- Statement of the owner’s purpose. The owner should clearly state what the manager is to accomplish. One owner may want to maximize net income, while another will want to increase the capital value of the investment. Long-term goals are often key.
- Extent of the manager’s This provision should state what authority the manager is to have in matters such as hiring, firing, and supervising employees; fixing rental rates for space, and making expenditures and authorizing repairs. Repairs that exceed a certain expense limit may require the owner’s written approval.
- The frequency and detail of the manager’s periodic reports on operations and financial position should be agreed on. These reports serve as a means for the owner to monitor the manager’s work and operational trends; they form a basis for shaping management policy.
- Management fee. The fee may be based on a percentage of gross or net income, a fixed fee, or some combination of these and other factors. The fee must be negotiated between the property manager and the principal. In addition, the property manager may be entitled to a commission on new rentals and renewed leases.
- Allocation of costs. The agreement should state which of the property manager’s expenses – such as office rent, office help, telephone, advertising, and association fees – will be paid by the manager. Other costs will be paid by the owner.
- Antitrust Management fees are subject to the same antitrust considerations as sales commissions.
Equal opportunity statement. Residential property management agreements should include a statement that the property will be shown, rented, and otherwise made available to all persons protected by state or federal law.
