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The surprising thing that could stop your agency growing
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Ben White
23 February 2022
One of the most destructive elements that will thwart a company’s growth plans is the typical management agreement.
These often have the unintended consequence of undermining all the work the company has done to define its point of difference and connect to its targeted investor segments.
In most jurisdictions, the law determines a set of information that must be included in a management agreement. Typically, there’ll also be a page where all the company’s fees are listed, usually called a fee card. This inclusion automatically puts the company on the back foot.

“The problem is that fee cards reduce everything a company does to generic language and forces the discussion to fees.”

Ben White, Ailo Co-Founder
They also serve to reinforce a persistent perception among investors that property management is just about finding tenants, collecting rent and fixing things when they break.
“Over the time since, the role of a property management company has changed so much. We are risk managers, tenancy managers, investment managers, negotiators, bill payers, paralegals and compliance inspectors.”
The change to our role has occurred within the context of a much more complex legal framework for managing tenancies with many more nuances impacting the rights and obligations for investors, tenants and agents. And yet, few management agreements or fee cards have evolved to match that change.
The result is that today, we have management agreement forms that simply ask: Does the agent have authority to issue work orders on behalf of the investor? Yes or No. Does the agent have authority to pay bills on behalf of the investor? Yes or No. Can the agent market the property? Yes or No. The list goes on.
Anyone who knows our industry knows that the interesting part of these questions is never resolved by a “Yes” or “No” answer. It is rather all about how a company does those things. For example, the agent is authorised to collect rent, but how will the funds be disbursed and how often? The answer to questions like this (and the hundreds more like it) is the qualifier of the service that the company delivers and the costs of doing so.
It follows that it’s not until a company has worked through all of those issues that a fee can realistically be calculated.
Additionally, without going through the process of answering these questions, potential investors are forced into the situation where they have no way to understand the services that will be provided, and so will draw the natural conclusion that all companies are the same. From that conclusion, they’ll then decide to just negotiate on price and choose the cheapest.

“With this in mind, instead of just talking about the fees that are charged, companies should instead focus on the services they offer.”

Ben White, Ailo Co-Founder

Understanding how investors view services

The key to any value equation is understanding the perception investors have of the value particular services bring. Companies need to work to maximise that perception of value and frame those services in a way that allows them to deliver those services profitably. In my mind, there are three broad services:
1. Property services
The most obvious ones are the repairs and maintenance work streams. These services are required whether or not the property is tenanted and actually, whether the property is even an investment property or not.
2. Tenancy services
These include the rent collection and management processes, inspections, breaches and renewals.
3. Investment services
This would include services like the disbursement preferences of the investor, the payment of bills, the way funds can be sent to and received from the investor and services related to home loans, tax insurance and tax depreciation.

“Going through this effort of breaking down the services a company will provide goes a long way to both exploring what its customers want and also ‘de-averaging’ the offering, so that the company stops playing towards the middle and gets to where value truly lies.”

Ben White, Ailo Co-Founder
The important point is that different investors will find different sources of value in the same thing. Some investors will pay more to have the property manager make all the decisions and not bother them, while others will pay more for the property manager to run every single detail past them, to make sure their anxieties are dealt with. Some will pay more to have funds disbursed daily so that the mortgage account is paid off quicker. Some investors would be prepared to grant the company a direct debit authority, so that it can take funds from the owner when a bill needs to be paid. Some would be prepared to pay more for an experienced property manager, while others may not see value in that.
Companies that can understand these trade-offs and are able to establish what each of their investors and potential investors want will be empowered to offer a more customised approach and provide services that will have a clearer connection to value. As a result, there’ll be greater alignment between the fees charged for services and the costs to deliver those services, and the company will be better able to drive growth and profit.

“When a company does find a way to break the traditional ‘fee card’ model, it may find new ideas to explore.”

Ben White, Ailo Co-Founder
For a silent majority investor, if the negotiations were becoming too focused on fees, perhaps the company might agree on a lower fee, with the concession being that the property will be managed by the most junior person in the team. After all, every profession from lawyers through to hairdressers have some kind of increasing fee scale based on experience. If an investor doesn’t value experience, allocate the cheapest team member. In return for lower fees, the company might instead insist on a high maintenance authority and set a clear expectation that quotes will not be needed unless the work is over a higher level still. This level of authority will allow the team to be more productive. However it’s calculated, if the investor needs to have lower fees then the company needs to have fewer costs to manage that property.
The options go on and on. The key point is that any company can only build a service schedule after it has understood exactly what is important to potential investors.

“The enemy of all of this work is averages. Sure, the average investor wants one inspection a year, but don’t only offer that option. And certainly, don’t offer to do more without first rethinking the associated fees.”

Ben White, Ailo Co-Founder
The more a company practices this way of thinking and the more it experiments, the more will be learned and the more value the company will be able to create.
This is an excerpt from Numbers Game: The science of growing a rent roll by Ailo founder and CEO, Ben White.