The truth about lost managements
27 July 2020
One of the most commonly held beliefs in property management is clients are loyal and, clients who sell their property invariably use the agency.
The belief that property management businesses are strong sources of leads for the sale business is so foundational to the entire business model that it is rarely questioned.
“If you ask a business owner if the agency gets most of the sales out of the rent roll, the answer is almost always 'yes, we get them all.' Unfortunately, it is almost never true. How do we know that? Well, we have the data to prove it.”
— Ben White, Ailo Co-Founder
When you look at it there are two competing sets of “facts”. The first is what is in the trust accounting system (and what the team believes), the second is what actually happened.
We looked at data from 180,000 properties that have left rent rolls, for the period 2016 to 2019, for the reasons given in the trust accounting systems for the losses.
It turned out to be more time consuming than we thought. For those 180,000 properties, there were over 18,000 different reasons given. So, we grouped all the “like” reasons together to get a clearer picture.
We found 55% of the responses given for the loss of a management was “no reason given.” That is, the team didn't provide a reason.
Those 180,000 properties have a rent roll value of almost $1 billion. Can you imagine any other industry where $1 billion in asset value can go missing in three years and no one is interested in what happened to it? And that’s just the properties we track. The industry number would be closer to $15 billion, or $5 billion per year. That’s a lot of money.
The second main reason is the “property is sold” with the “owner moving back in” rounding out the top three.
We investigated further by partnering with a couple of agencies we work with and traced the lost managements through PriceFinder to find out what really happened.
It turns out, on average, for every 100 properties that leave a rent roll, 60 of those are sold. However, while property management companies think they get all of those sales, only around 35 are sold through the agency, the other 25 go to competitors.
In dollar terms, that’s another $1billion in sales commission going to competitors in our data set alone. Incredible!
Also, despite thinking our clients are loyal, the data shows 20% of lost managements are investors moving their management to another agency.
Although it is nice to think our clients are loyal, and our property management businesses are sending the sales leads to the sales team, the reality is property management companies are losing billions of dollars each year to competitors. Despite this, as an industry, we don’t seem to care enough to honestly track the data in our systems.
Acknowledging the reality of lost managements, and what causes them, is key to understanding what we need to do as an industry to increase our service levels.
Billions of dollars are riding on it.