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What to look for in a property management contract

Whether you’re experienced or new to commercial or residential real estate investing, one of the most important things on your to-do list must be to hire a competent and reliable property manager.

Choosing the candidate best suited for the job depends on the needs of your venture, but you can’t go wrong with property managers who have substantial experience in the field, as well as familiarity with the local area and your target tenants. Consider your professional rapport, as well, since you will be working together in the months or even years to come.

Once you’ve decided who to hire, seal the deal with a contract that describes in full detail your respective responsibilities and obligations as professional partners. Here is a guide to the essential elements that your property manager’s service contract must contain:

The property manager’s basic roles and corresponding fees

Your property management contract must list and describe the roles and responsibilities that the property manager will be expected to perform when they assume the role. These typically include:

  • Screening tenants
  • Collecting rent and other dues
  • Managing the budget for the entire property
  • Overseeing the building or property’s maintenance and repair needs

The contract will also declare the fees that the property manager will receive in exchange for these services. Make sure that the contract has clear language defining any services that may require additional payments, such as handling evictions and filling vacancies. Discuss whether these fees are fixed, based on a percentage, or can be decided on a case by case basis.

In addition to paying close attention to what your property management agreement covers, be sharp about what is not included in the contract. Watch out for loopholes in the contract that may enable the property manager to charge hidden or extra fees. A thorough review of the breakdown of the management fee will help you find such potential gaps.

Your responsibilities as the property owner

Your property management contract will also bind you, as the owner of the property, to certain responsibilities, as well as limitations and restrictions.

In most cases, the property owner is responsible for creating a reserve fund that will provide a financial safety net for the venture. Matters regarding the property’s insurance coverage also fall within the owner’s jurisdiction.

The contract may also include provisions that prevent the owner from leasing out to a tenant of their choice or from entering a unit without prior notification and approval by the tenant. These restrictions are meant to protect the property owner from potential liability.

A declaration of compliance with Equal Opportunity Housing

For investors in residential real estate, the property management contract must also declare that the property supports Equal Opportunity Housing and complies with the Fair Housing Act of 1968. This ensures that the property is available for any potential and interested tenants, regardless of race, color, religion, sex, handicap, familial status, or national origin.

Indemnity/Hold harmless clause

This clause exempts the property manager from liability, except when there is evidence of their negligence.

Duration of the contract

For a first-time engagement with a property management company or professional, draft a contract that ends within 18 months to two years (most property management companies will refuse to sign a contract for just one year or shorter).

While signing into a long-term agreement may seem like it will prevent future inconveniences, you would not want to be tied to a property manager until you have witnessed and experienced what they are capable of doing first. A finite duration for your contract will allow you to change to another property manager within a reasonable period.

Termination clause

Having a clearly defined termination clause will come in handy in case your relationship with the property manager sours due to their neglect or sheer inability to perform their assigned duties.

This clause must describe the criteria required to justify the termination of the contract, the required documents and procedures to process the termination, and the respective parties’ obligations in such a scenario.

To be clear, however, the termination clause should work both ways. You, as the property owner, can terminate the contract if there is a valid reason to do so. But the contract should also give the property manager the right to terminate the contract if needed.

If you’re searching for a dependable property management company in College Station or Bryan, Texas, look no further than Berkshire Hathaway Home Services (BHHS) Caliber Realty. Get in touch with the team today by calling 979.694.8844, emailing sales(at)bhhscaliber(dotted)com, or sending your inquiries here.

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