Gotcha Guide™: Top 5 Tips to Avoid the Bite of a Bad Property Management Agreement

NOTE: This article is part of the forthcoming book, the Gotcha Guide™ to Buying or Investing in Real Estate. Email us to join the mailing list for the release date. by DeeinAustin™

I'm a member of the Texas Association of REALTORS® (TAR) and normally like the forms they provide for consumer use. This post is based on my experience helping a friend negotiate a property management agreement provided by the Texas Association of REALTORS®.

Perhaps I was naive, but I was surprised at how much the standard language in the Texas Association of REALTORS® (TAR) property management agreement was biased in protecting the property manager's interests. I respect the job that Austin property managers do, but couldn't let my friend sign without striking half the clauses.

Before becoming a real estate broker, I was a landlord. I used the Texas Apartment Association (TAA) forms.  

The "standard" Texas property management agreement, "Residential Leasing and Property Management Agreement" (Form TAR-2201), was easily skewed by the property manager, who protected themselves while charging my friend additional costs that the contract allowed.

GOTCHA GUIDE™: TOP 5 TIPS TO SNAP BACK AT BAD PROPERTY MANAGEMENT AGREEMENTS

 1. Right to use another broker on the sale. Do you want the right to choose another broker when you sell? Per section 11-H of our Texas Property Management Agreement, my friend would pay 3% if the tenant or someone else purchases during or within 90 days after the contract ended. This was without the manager's help!

2. Extra Service Fees. The Texas agreement has fill-in extras for service fees. Need a make-ready? Manager taking a trip to the property? Filing for eviction? Do they need to make copies? My friend's agreement had $50 per hour additional fees plus reimbursements for these standard landlord services.

3. Who keeps your cash? Most often, your deposit funds will be kept in an interest-bearing account. The Texas agreement automatically lets the property manager keep the interest. In fact, section 11-F allows the manager to pocket late charges, returned check fees, and other fees from bad tenants.

4. You're fired! Now what? If you fire the property manager, you better check for extra charges. Our agreement had my friend paying $250 if he wanted to fire the manager. Didn't matter why.

5. What happens in case of default? Always read the default clause. Think you verbally negotiated a resolution? Think again. The Texas property management agreement requires that you submit your complaint in writing only within 10 days of the breach.

GOOD PROPERTY MANAGERS WILL PROTECT THEMSELVES

Good property managers should protect themselves. They deserve it. When you choose a property manager for your Texas real estate investments, pay attention to your agreement and simply ask that both sides negotiate fairly. Propose a win-win contract instead of simply signing your money away. Be extra weary if the contract is TAR-2201 Residential Property Management Agreement.

Agree? Disagree? or...have input? Feel free to leave a comment!

OTHER TEXAS REAL ESTATE INVESTOR TIPS

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• Our Top 6 Real Estate Investor Articles.
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• How to minimize risk in spec building.

All Rights Reserved, Copyright 2008 © Dee Copeland

Comments

[Christina Ethridge]

"In fact, section 11-F allows the manager to pocket late charges, returned check fees, and other fees from bad tenants."

This makes complete sense. It's the property manager that expends time, resources and money when tenants pay their rents late or bounce their checks.

[Dee Copeland]

Hi Christine!

My friend and I didn't think this made sense because the property manager is the one who attracted and reviewed the tenant in the first place. I can understand if they had nothing to do with placing the tenant, but this seems unfair to give them compensation when the tenant doesn't pay. I thought the compensation was the 8% they're asking for plus the initial charge for putting the tenant in the property.

This means they can put a bad tenant in my property, then keep the fees even though I'm the one losing rents. I'd have to negotiate that one because I'd rather the manager just put a good tenant in the property so we can avoid late fees in the first place.

[Steven]

I am looking to lease my home in Colleyville, TX and have never used a prop management company before. Previously, I did it mostly myself. Has anyone had a honest and long lasting relationship with their Prop Mgmnt Co without junk fee and bad tenant/rental issues? Pleae inform.

Thanks.

[John Ellis]

Dee,
I came across your article while searching for a way to launch a complaint about a company that I have used for the past 7 years. I am in the Military and was transfered after buying a home. I hired this company (Underbrink and Associates) to take care of my home and things worked out well up until the last year that I was with them. It got to the point where I could not get in touch with the property manager and my calls went unanswered. I eventually moved back into the house only to find that there was alot of neglect to the care of the home. As it stands, I just bit the bullet and took it as a lesson learned.

[Dee Copeland]

Wow. Thanks John, for sharing that. I think things are always fine if they go right, but when things go wrong and you need help, you have to look back at what was put in writing.

I've had bad experiences with property management companies myself, which is why I had to manage them for years until I sold in 2007.

[Terry Family]

Mr. Ellis,
I too am having trouble with Underbrink and Associates and ran across this the same way you did. I am not the owner of the home, I am the one leasing. They won't return calls, there are safety issues with the home etc. I have a friend in AP that was in your position with them and only got results after speaking with Navy Legal, housing, complaints with the BBB etc. I find it interesting that they don't even deposit my rent check till around the 15th or 17th of the month when I gave it to them a few days prior to the 1st of the month. That means that the owner of the home may be struggling to make a house payment on time? Bah! Am I correct guessing their location is Ingleside?

[Terry Family]

Mr. Ellis,
If we are speaking of the same Underbrink & Associates in Ingleside please let me know. Maybe we can help each other with this giant mess. I don't mind my email address being on here. It's [email protected]