When property owners evaluate third-party management companies, the management fee often dominates the conversation. However, industry experts argue that this focus is misplaced, as operational metrics such as bad debt, unit turnover speed, and chargeback structures have far greater financial implications. Ron Kutas, CEO of OneWall Communities, an owner-operator that also provides third-party management services, explains that a 25 basis point reduction in management fees on a $2 million rent roll saves only $5,000 annually, whereas a 200 basis point improvement in bad debt saves $40,000. "You're negotiating one of the smallest numbers on the page," he says.
Kutas warns that unusually low fees often mask hidden costs through increased billbacks or reduced service attention. He advises owners to scrutinize the chargeback schedule—the costs billed back to the property beyond the management fee. A transparent manager should provide a detailed breakdown, while revenue-driven firms may be vague. This lack of standardization in the industry, with varying chart-of-accounts structures and approval thresholds, further complicates comparisons, making the fee the only clear number to negotiate.
Reporting detail is another telling indicator. Kutas points out that generic expense categories like a single "repairs and maintenance" line can hide inefficiencies. Owners should look for granular breakdowns that reveal where money is spent. Additionally, the human element is critical: owners should inquire about the regional manager's experience and tenure, as well as the firm's backup plan for staff absences. A lack of bench strength in a market is a common reason OneWall declines assignments.
Owners also misattribute underperformance to the manager when the market may be the issue. Kutas suggests comparing performance against public data and examining ownership history; if a property has had three managers in four years, the problem likely lies with the owner's expectations or the asset itself. Managers willing to turn down business signal that they prioritize quality over volume, which is a positive indicator.
In summary, the industry's focus on headline fees is misguided. Owners should evaluate chargebacks, reporting detail, personnel quality, and operational metrics to make informed decisions. Managers who can articulate these complexities are better positioned to deliver long-term value than those competing solely on price.
