When property owners compare management companies, the fee is often the first and only number they examine. But according to industry operators, that focus may be misguided. Ron Kutas, CEO of OneWall Communities, an owner-operator that also provides third-party management services, says the fee is one of the least important figures in the decision.
Kutas illustrates with simple arithmetic: a 25 basis point reduction on the management fee for a property with a $2 million rent roll saves about $5,000 a year. In contrast, a 200 basis point difference in bad debt at the same property is roughly $40,000. "You're negotiating one of the smallest numbers on the page," he says. The real drivers of performance are unit turnover speed and bad-debt policy.
Moreover, a manager willing to drop from 3 percent to 2.5 percent must recover that half point somewhere. Often, it resurfaces as higher billbacks, more home-office personnel charged to the property, or reduced attention to the asset. A fee that appears too low to be profitable often is not as low as it seems.
Kutas advises owners to scrutinize chargebacks—costs billed back to the property on top of the fee. He suggests asking managers to walk through every billback. Revenue-driven companies tend to be vague, while an owner-operator will have a schedule ready and can explain each charge.
Reporting detail is another red flag. Kutas points to generic parent accounts on the chart of accounts, like a single "repairs and maintenance" line rather than a breakdown into paint, electrical, plumbing, and the rest. "The less detail, the more concerned I'd be," he says. Thin reporting hides undifferentiated spending.
The lack of industry standards compounds the problem. Chart-of-account structures differ from firm to firm, as do bad-debt policies and expense approval thresholds, which can vary from $500 to $1,000 or a set percentage over budget. This fragmentation leaves the expense side opaque, making the fee the default thing to haggle over.
Kutas also emphasizes people over price. He tells owners to ask who the regional manager assigned to the property is, their track record, and tenure. A regional new to the role or asset type is a caution. Second, what backup exists if the community manager or service manager is out? Owners should know if the firm has a genuine bench or relies on temporary labor. Lack of bench strength is one of the most common reasons OneWall declines an assignment.
Owners also misdiagnose underperformance, blaming the manager when the market is soft, or vice versa. Kutas suggests checking market performance against public data and examining ownership patterns. "If you're on your third manager in four years, it's probably not the management company," he notes.
Finally, Kutas believes owners undervalue a manager's willingness to turn down business. "We sell attention and labor," he says. A firm that stretches itself thin to win every contract is less able to serve any single property. As owners become more skeptical of headline fees and more attentive to the expense side, managers who answer the harder questions in detail will stand out from those competing on price alone.
This analysis comes as the property management industry sees increased competition and owner scrutiny. For those considering hiring a manager, the advice is clear: look beyond the fee to the total cost structure and operational capabilities.
