The Kestner Team

WORD TO THE WISE:  MANAGEMENT AGREEMENTS

Many of our clients are out of state real estate investors that purchase single family homes as a buy and hold strategy for income growth.   As the owners of the property live out of state it is necessary for them to hire a local property management organization to take care of the property for them.   The property management company’s duties are many but among them are finding tenants for the property.  

I strongly urge you to read each and every paragraph of that agreement closely before signing.    SHOW IT TO YOUR ATTORNEY – a couple hundred dollars now could save you thousands later.   You have the right to negotiate the language in the contract and if the management company rejects your change, there are other management companies to choose from.  

I say this because it has come to our attention that some management agreements contain very restrictive language regarding the future sale of the property.   One such contract actually states that if you choose to sell your property during the term of the management agreement AND for 12 months thereafter, you have to pay the management company a 6% commission EVEN if the management company does not participate in the sale of the property.  The agreement goes on to state that if the tenant in the property decides to purchase the property during the term of their lease AND for 12 months thereafter, the management company gets a 6% commission EVEN if they do not participate in the sale.   

If you take this language literally, you could end up paying a 12% commission to the management company should the tenant purchase the property on top of any commission agreed to with the listing and buying agents.

You might want to review your management agreements and re-negotiate that language or cancel your agreement and find a management company that is more realistic or at least has your best interest in mind and not their pocket book.