When property owners evaluate third-party management companies, the management fee often becomes the primary comparison point. However, industry insiders suggest this focus is misplaced, potentially costing owners significantly more in the long run.
Ron Kutas, CEO of OneWall Communities, an owner-operator that also provides third-party management services, highlights the disparity with simple arithmetic. For a property with a $2 million rent roll, a 25 basis point reduction in the management fee saves only $5,000 annually. In contrast, a 200 basis point difference in bad debt at the same property amounts to roughly $40,000. “You’re negotiating one of the smallest numbers on the page,” Kutas said, emphasizing that operational metrics like unit turnover speed and bad-debt policies have far greater financial impact.
Kutas also warns that managers who lower fees may compensate through increased billbacks or reduced service. “A fee that looks too low to be profitable usually is not as low as it appears,” he noted, urging owners to scrutinize chargebacks—the costs billed back to the property beyond the management fee. He advises asking managers to detail every billback; revenue-driven companies tend to be vague, while owner-operators with transparent practices can provide clear explanations.
The reporting structure itself can reveal red flags. Kutas points to generic parent accounts, such as a single “repairs and maintenance” line, as a warning sign. “The less detail, the more concerned I’d be,” he said, as thin reporting can hide inefficiencies and undifferentiated spending.
The lack of standardized chart-of-accounts across the industry compounds the problem, leaving the expense side opaque. This fragmentation makes the visible management fee an easy target for negotiation, but Kutas argues owners should focus on detailed reporting and transparent cost structures instead.
Beyond numbers, Kutas stresses the importance of personnel. Owners should inquire about the regional manager’s experience and tenure, as well as the firm’s backup plans for unexpected absences. He notes that insufficient bench strength in a market is a common reason his own company declines assignments.
Finally, Kutas cautions against misattributing underperformance to the manager when market conditions may be at fault. He advises owners to compare property performance against public market data and to consider their own track record: “If you’re on your third manager in four years, it’s probably not the management company.”
As owners become more discerning, managers who can answer detailed questions about operations and costs will stand out, rather than those competing on fee alone. This shift could lead to more transparent and effective property management partnerships.
