THE 21 MOST COMMON MISTAKES PROPERTY INVESTORS MAKE-2

October 25, 2011

2. Mistaking cheap fees for quality service

In property management we see many property investors making the mistake that all real estate companies are the same, and all offer the same service so the best way to differentiate between them is to get cheaper fees. However we have found a common pattern among agents is the cheaper they get, the lower their service levels.

Often we hear of owners that select an agent based on a half a percent or one percent cheaper.

EXAMPLE: A $500 per week property

  • 0.5% cheaper = $2.50 per week
  • 1% cheaper = $5 per week

Almost always, we find that the agents that are cheap are so because the service levels are less.

e.g.

  • Poor property condition report details
  • Poor management of rental arrears
  • Poor routine inspection procedures
  • Poor in communication
  • Poor in follow up with maintenance matters

We have seen properties that we have taken over where owners saved a few dollars a week, just to find that they have lost thousands due to the inept skills and follow up of previous property managers that meant even after they went to court, the owners could not recover the money as the tenants could not pay.

A first class property manager will never let this happen. As in life, you really do get what you pay for.

Here is a simple step by step analysis of how cheap fees lead to poor service levels;

  • Cheap fees is the starting line- unfortunately the perception is that agencies all do ‘the same thing’, we collect rent, get repairs done and find a tenant. With this perception we then might be attracted to a cheap agent, or one that substantially discounts their fee to impress you to win your business.
  • The property manager must manage more properties- because the agency has a much lower revenue base now because of their cheaper fees, the property manager is now well overloaded with too many properties to justify the same salary as the other ‘more expensive’ agency down the road.
  • Burnout and resignation- the overload of managements causes the property manager to become disillusioned, not coping and causing ‘burnout’, struggling to meet investor expectations of service levels, with the end result being resignation.
  • Good property managers now avoid this agency- once word of mouth spreads amongst property managers that to work at this agency you must manage so many more properties and so the good property managers steer clear of this business. Therefore the only people the principal can employ is either inexperienced or poor performing property managers who can’t get a job in good agencies.
  • Poor service levels- due to this factor of now lower expertise levels, the result is poor service all around and disillusioned property investors who thought they had a ‘bargain’!

The end result is the property investor now quite willing to go and find a quality agency and realise they need to pay a bit more to get better service and peace of mind.