When property owners evaluate third-party management companies, the conversation often begins and ends with the management fee. It is the most quoted metric, easy to compare, and appears to give owners control. Yet, according to operators who have experienced both sides, this number is among the least significant in the decision-making process.
Ron Kutas, CEO of OneWall Communities, an owner-operator that also offers third-party management, contends that fixating on fees distracts owners from where the real financial impact lies. He illustrates with simple math: a 25 basis point reduction on a property with a $2 million rent roll saves $5,000 annually, whereas a 200 basis point difference in bad debt amounts to $40,000. “You’re negotiating one of the smallest numbers on the page,” he says. The critical factors are unit turnover speed and bad-debt policies.
Furthermore, Kutas warns that a manager willing to lower fees from 3% to 2.5% must recover that difference somewhere. Often, this manifests as increased billbacks, additional home-office charges, or reduced attention to the asset. A fee that appears unprofitably low is usually not as low as it seems.
The line owners should scrutinize is chargebacks—the costs billed back to the property beyond the management fee. Kutas suggests asking managers to detail every billback. Revenue-driven companies tend to be vague, whereas owner-operators have a schedule ready and can justify each charge.
Reporting also reveals a lot before signing. Kutas points to generic parent accounts on the chart of accounts, like a single “repairs and maintenance” line, as a red flag. Detailed breakdowns into paint, electrical, and plumbing indicate transparency. “The less detail, the more concerned I’d be,” he says, as thin reporting hides undifferentiated spending.
The industry lacks a shared standard, with chart-of-account structures varying, as do bad-debt policies and expense approval thresholds. This fragmentation makes the expense side opaque, pushing owners to default to haggling over the visible fee.
Kutas advises owners to ask about people, not just price. Who is the regional manager, what is their track record, and how long have they been with the firm? Inexperience in the asset type is a caution. Also, what backup exists if the community manager is on leave? A strong bench is essential; OneWall often declines assignments due to insufficient local bench strength.
Owners also misdiagnose underperformance, blaming the manager when the market is soft, or vice versa. Kutas suggests checking market data against public figures and examining ownership patterns: “If you’re on your third manager in four years, it’s probably not the management company.”
Finally, Kutas values managers who are willing to turn down business. “We sell attention and labor,” he says. A firm that overextends to win contracts cannot serve any single property well. As owners become more skeptical of headline fees, managers who answer detailed questions will stand out from those competing on price alone.
For more insights, visit OneWall Communities.
