Critical Questions and Criteria When Evaluating A Property Manager

Preparing yourself for an effective interview and selection process:

1. TIMELINE – Allow yourself time to prepare and make an effective decision. It is most efficient to interview potential property managers 3 to 4 months prior to requiring their services. While any property manager will allow you to hire them the week you need them, you will make a better decision, and prepare both yourself and your selected property management firm for a better probability of success if you interview and make your selection 75-90 days in advance of the property being vacant/available for a new Tenant.

2. APPLES TO APPLES – Seek VALUE not just price of services. Too often the only question that is asked is “what is your management fee?” If you stop there you may end up with a significant disparity between the price you actually pay and what you expected to pay by zoning in solely on the management fee. Additionally, you want a clear understanding as to the level of services and what differences there are in service programs.

3. THE “WHO” and THE “HOW” – When narrowing down which firms to interview:

1. Don’t be content with just a Realtor that has a good reputation. Interview property management professionals and firms and compare their program and services. Allow whomever you interview to make a reasonable business case to earn your business.
2. Litany of tasks vs sense of mission and client care. Often, the tasks promised are the same, therefore you should be looking for a system that can consistently deliver on the tasks expected with the results you are looking for. What is the firm’s sense of mission within said services? It's not so much what they do, but how they do it!
3. Can they demonstrate some kind of knowledge or customization of services for your home and need (not just a template or an auto-response)? If there are things that make your home unique, how does the property manager you are hiring promote what makes your home special and how do they propose reducing the liability of the risks your home represents?
4. Significant real estate policy change within our local market: New policy for the DMV region MLS system, BrightMLS, in which real estate brokers utilizing the MLS system must put all listings for sale, or for rent, into the MLS if the property is being made publicly available. This new policy means brokers can be fined if they are advertising “pocket listings” (private and exclusive advertising channels for unique consideration and not fully available to the public). Many property managers have built a business model around avoidance of using MLS and channeling pocket-listings to drive better leasing commission margins (where brokers don’t have to share commissions with other brokers via MLS). The new policy encourages competition and cooperation of professionals within the marketplace AND it strongly supports the ideals of fair housing. What this means for property managers/brokers who built a business model avoiding listing in MLS prior to the policy – they must either:
   1. Adapt to the new policy and list on MLS. Or;
   2. Stay off MLS use entirely and make all their rental properties available in any way the broker would like and be excluded from the wide-net and powerful listing marketing network that MLS provides. Brokers/property managers that choose this path can keep their costs to landlords low, or keep their commission margins up, BUT… they sacrifice providing their landlord client full-exposure in marketing the property and they significantly increase the probability of longer vacancy time between tenants (more DOM due to less marketing exposure). More DOM (Days on Market) tends to lead to lower rent rates for the same property, and a lower quality of tenant.

4. THE “WHERE” – Interview a representative at the property you are seeking management on (if possible) before finalizing your selection. In the context of your property, the property management representative(s) will offer you a much better sense of their depth of understanding of what it takes to manage your home. If you can’t meet a property manager at your property, then try to provide advanced context (address, rental history, recurring maintenance troubles, etc). If you plan to interview multiple firms, we recommend you don’t try to do it all in one day; space out the interviews, or, you may end up feeling like you are speed-dating. Once you feel like you have a solid choice/selection of firms you probably don’t need to invest your time interviewing three or four more, but it is prudent to interview at least two firms for comparison.

5. Before committing to a property manager, ask them to define what a timeline of events might look like for you/your property over the next 30 days and the next 6 months or beyond. Understand their recommended pricing strategy, marketing timeline, rent disbursement and collection timeline, and how the firm intends to make your term as a landlord most efficient and valuable to you.

6. YOUR MODUS OPERANDI – The approach and perspective you take into your decision-making process is critical to your overall success of being a landlord. In owning a rental property, you own a business:

• You have a product - the house. Your product will need to be maintained and positioned to produce the maximum revenue.
• You compete for good customers - your tenant. The quality of your customer selection and revenue collections are critical to the success of your business. Somewhat unique to this business is you only have one customer (at a time). Understand your customer’s perspective. Your customer’s satisfaction matters. To be unaware of this is a risk to your income stream.
• Your business is based in revenue and expenses - you incur expenses which are necessary to generate rental income.
• Your business operates in a highly regulated environment jurisdictionally with local ordinances;
• nationally with fair housing and other laws; the IRS.
• Like all businesses, your business is subject to market & customer risks & regulatory compliance risks.

7. Like all good businesses, you should develop a business plan. Since this process is about planning, your business starts now.

8. Your goal in operating your business is to maximize the performance over the life of the operational phase– from when your property is first exposed to the market until you either return home, or you sell your investment vehicle, at which point the business ends. It’s not a bad idea to try to maximize the first month, and get off to a good start, but you should be focused on an annual plan, or better yet, make decision and maintain a vision based upon the “life of your business”.

9. You are the “CEO” of your business. You also need a “business manager”. These are two different roles. You may choose to be both CEO and business manager or hire one. Your business requires ongoing management either way. In hiring a “Property Manager”, you are hiring your “Business Manager”. What kind of a CEO will you be? Will you listen to the advice of your business manager? Will you start your relationship with the business manager you hire from a perspective of trust, will they treat your customer well?

If you understand and adopt this context, you have a better understanding of what this experience is all about and will have a better plan and thus a greater chance for success than most landlords.

Questions to ask your prospective Property Manager

1. Question: “Who am I communicating with, and when?” The three greatest factors that will determine your landlord experience: Care, Communication, and Economics! Who is communicating with you, and when? Who is it that is accountable to you? Who is it that is supposed to care for you? Are they caring and accountable as a professional? Who will guide you to the best economic outcome? Teams are a great concept because they can potentially allow for specialization and depth of services – but only if the property manager’s system is structured properly and if you will be communicating with top professionals.

2. Question: “What were your average Days on Market when leasing properties in 2019? What Metrics support you are the best property manager for me?” It’s about their ability to deliver you results – The best indicator of future performance is through understanding the consistency and depth of past performance. Ask for them to demonstrate a past success story, and don’t rely on a stale, printed testimonial that was from ages ago. Get the statistics (Average Days on Market [“DOM”] when leasing, Average rents, etc) – if they don’t know the metrics for their own success, how can you expect them to efficiently get you the best metrics for your success?

3. Question: “Can you give me an example of a time you really showed your company cares about more than just collecting rent?” Sense of Care – Past results are great, but you want to know your property is both in the hands of a professional, and someone that cares. Care is most evident in your overall impression after conducting an interview at your home. It’s hard to get a sense of care in a brief phone discussion or a rushed meeting at Starbucks. Go ahead and ask them a scenario where they delivered care or showed accountability to another client. There is no right or wrong answer… but how they answer will surely tell you something.

4. Question: “What are the different services you charge for? And, how much do you charge?”

Understand price of services and what you can be charged for – Ask the prospective manger to provide a list of all charges that could or will be charged to you. They should all be included in the Management Agreement. Better yet, can the property manager customize a plan that best fits your needs?

Types of fees typically charged:

• Leasing fees
• Marketing related expenses
• Lease renewal fees
• Management fees- often stated as a percentage of rent collected.

Types of fees sometimes charged:

• Management fees when property is vacant
• Fees for representation in legal proceedings
• Fees for representation at HOA/Condo meetings
• Fees for obtaining additional repair estimates
• Fees for coordinating/overseeing major home improvements beyond normal maintenance and repair
• Fees for additional inspections
• Fees for use of company technologies of systems
• Fees to terminate the management agreement (or transfer to property manager).

Once you understand the prices, then seek to understand the value. If it isn’t obvious, ask the property manager to give you the value proposition of why they charge any particular fee.

Prices are the prices; value relates to your total experience. If it’s in the management contract, then you are giving the property manager permission to charge this fee. An answer of “we never charge that fee, but it is in our standard template contract” is not good enough.

5. Question: “What are your services? What do you do when managing my property?”

Management Services, what do they encompass – Tasks typically include:

• Advertising your property, and vetting a tenant;
• Collecting the rent in a timely fashion. Ask “what are your procedures, when rent is late? And then what? And then what?”
• Handling maintenance or repair calls;
• Handling of HOA issues or insurance claims’
• Providing accurate periodic financial statements to you;
• Inspection(s) of property;
• Reconciling your escrow account and regular reporting
• End of year tax forms and reporting
• Do they handle utility transfers between tenants?

Look for a sense of mission and good procedures in your discussion instead of a litany of tasks. You want someone to advise and guide you, we are assuming all candidates can perform the tasks at some level. Does the firm offer some additional platforms or services that others do not?

GOOD PROPERTY MANAGEMENT = GOOD PROCEDURES!

6. Questions: “Tell me about your company, your key employees and how many properties do you manage?

How many in my area?”

Ask about the Property Manager’s business – Look at the business itself:

• How long has your company been in business?
• Who are your key employees? And…
• How long have they been with you? (These are separate questions and ask them in that order.) Turnover is a part of all businesses. Excessive turnover means always starting over. And you are likely to keep experiencing it. Long term employment means the business is likely stable/fair/a good place to work. If it’s a good place to work, it’s probably a good place to be a customer of.
• How many properties do you manage in my neighborhood/area?
• How many properties do you manage? How many staff members do you have and what are their job functions? (In that order.) Seek to understand the “depth” of the organization. That is a value proposition.

7. Question “What is the best leasing strategy for my home?”

Understand the leasing strategy of your potential property manager – Remember vacancy “expense” is the most likely (and most costly) operational risk, so this area matters greatly.

How do you determine what the rent on my property should be?

• Ask for a list of properties comparable to yours in terms of location, size, quality on which the company has rental information.

Understand your “competitive posture”. After they have seen your property, ask them what their sense of the rent should be and why. Comps play a role but comparable based pricing correlates better to sales than it does to rentals.

• Can I find the tenant myself? What recommendations, warnings, suggestions, or other advice can you give me about advertising on my own?
• Does your company work with Foreign Embassies when finding tenants? Is my property one which will attract embassy personnel? What other information should I know about renting to foreign clientele?
• What advertising venues or medium are used to find tenants? DO THEY USE MLS? What are the most effective avenues for your firm in finding qualified tenants?
• Ask for a timeline of marketing your property to better understand what the property management company recommends for your property and your situation.
• Any other marketing strategies recommended by the firm? Ask what you can do to increase your chances for a successful experience in finding qualified tenants and finalizing a lease on your property.
• The lease renewal process is often overlooked! What does the firm do to help you increase the rent and keep a good tenant? What are the lease renewal procedures and when do they take place?
• What are they doing to measure and evaluate the metrics of success (for you, and for themselves)? A key metric of success in leasing is “Days on Market”. Again, metrics define performance and performance begins to define value.

8. Question: “How do you handle the Tenant Selection process?”

What measures do they take to ensure that you are getting a good tenant – Most companies verify employment and income, order a credit report, as well as check with landlords and current employers.

Understand the “How” behind the property management firm’s tenant vetting process:

• What are the income qualification ratios?
• How long does it take to process an application?
• What is the philosophy on renting to tenants with pets?
• Any other important considerations or criteria?

9. Question: “How do you process Maintenance and Repairs?”

• When is an owner consulted before spending on repairs?
• What are the policies on emergency repairs?
• What is the management firm’s policy in selecting contractors?
• How does the company ensure competitive pricing of repairs?
• Does the management company evaluate and re-evaluate performance and pricing on the
• contractors they use?
• Are contractors licensed and insured?
• Can I and should I use your own, preferred vendors for the property

10. Question: “How often do you inspect my property, and do I receive a copy of report and pictures?”

• What is the inspection schedule or cycle?
• What kind of inspection report should I expect? When will I get it?
• What if I want to visit my property and inspect it myself?

11. Question: “What agreements do I need to understand if I do business with you? Are there any unique clauses that differentiate your agreements from other property managers?” Understand the documents - Ask for copies of the lease and management agreement prior to your meeting at the house. Your goal is to find a property manager that will best serve your interests within the legal parameters of the contracts. There are two critical documents that define your rental experience:

• The Lease - defines your relationship with your customer (the tenant). A lease can turn off a tenant from signing if it is too lopsided in favor of the owner, but it should also be strong enough to protect the owner’s interests. Understand the balance, understand how the property manager does/doesn’t articulate the lease nuances. Do they have any policies that conflict with the regional lease and why?
• Management agreement - defines your relationship with your business manager (property manager). If you can find the property management agreement that best aligns the property manager’s interests with yours then you are on the right track to partnering for success. You want mutual incentives for success so that your property manager primarily benefits when they achieve better results for you!

Read these documents and develop questions related to each. These will be valuable questions as these documents define your parameters, rights and responsibilities with your manager and your tenant. Understand that the documents define the contractual obligations, but not the operating strategy. It is in the documents that all costs can be determined, but it is in the operating strategy that value is determined.

12. Other Questions?

• What innovations or technologies does your firm employ?
• What differentiates you from other firms? Why should I hire you?
• What is the most frequent area of friction that occurs between you and your clients?
• Ask for examples of how the firm provides customer service to your tenant (your customer).
• How does your firm evaluate a good investment property and operational success?

The MAGIC QUESTION: “What can I do to help the property manager be successful for me?”

Selection, discretionary effort, and teaming up for success – Service positions involve significant “discretionary effort”. You are the CEO of this service business, and this is part of your job to understand “discretionary effort”. Discretionary effort is the difference between the maximum amount of energy/care that your service providers can bring to their service roles and the minimum necessary to avoid penalty. The difference between the maximum and minimum energy/care is discretionary to the individual performing the services. One of the principal differences between outstanding and mediocre service companies is that the outstanding ones receive far more discretionary effort from their employees. And that is what you want in your business…. So…

Once you have determined who your property manager will be, find out what you can do to prepare them so they can be successful for you. Help establish your relationship. This is as important as anything else you can do. Be one of their favorite clients! Then you will have the most productive and profitable results possible!