There are some real estate brokers out there and to be specific, property managers, who try to pick every last penny from their owners' wallets just like a circling vulture picking the flesh off an unsuspecting carcass.

Some of you may ask, "Well, how do I know if I am working with a vulture?"

The best way to determine this, and quite frankly your best defense, is to take the time to check the real estate broker's references, their reputation, and their qualifications. You should also know how to properly scrutinize a property management agreement and what other brokers are offering in your market.  Don't always assume that because a particular company has a large inventory they must automatically be better than other brokers.  Sometimes, a larger management company can result in less quality, higher fees, and more mistakes.

Now don't get me wrong: most real estate professionals that have been in the business for several years are good, competent people who genuinely want to help their clients become financially successful for REASONABLE compensation.  There are some, however, who try to take advantage of unsuspecting property owners by charging every type of backdoor fee possible (often fully disclosed), but because the property owner is not a very experienced or real estate savvy investor he or she will often suffer financial loss in a business where sometimes every penny counts.

"OK, so what is the bottom line?"

Assuming you've done your homework and have found a broker who is qualified and who may even be popular, look for these things in the management agreement to know whether they are more concerned about you or a vulture in disguise:

1) Are the management fees reasonable and all inclusive or are there a lot of backdoor fees?  In most US markets the average management fee for a single family home is 10% per month of the gross rent or income collected.  If you own a multifamily home, the management fee often and should decrease with the more rental units available.  It is not uncommon for a small multifamily property to command a management fee in the 6-8% range with larger multifamily properties commanding even less.

I recently scrutinized a well-known property management company in Columbia, South Carolina and discovered several backdoor management fees which I thought would be a good teaching moment for the general public.  To the company's credit, all of these fees were fully disclosed.  This particular company charged $75 trip fees to visit the property, a 10% extra management fee to manage maintenance requests (for non-company affiliated contractors), a 20% materials upcharge for all maintenance conducted by in-house maintenance contractors, a 6% automatic sale commission if the owner sold the property to a tenant even if the owner did not hire the Broker to sell the property, a 25% mandatory leasing fee on pre-existing tenants upon assumption of becoming the managing broker, and the list goes on and on.  Having been a multifamily real estate investor for several years in many markets across the United States and a licensed real estate professional, my gut feeling told me that this company was more concerned with their own bottom line than their owners' best financial interest.

2) Are the responsibilities of each party clearly defined and is the Broker trying to push all liability on the Owner without assuming any responsibility?  This is often overlooked and unchallenged by the layperson real estate investor but could prove very costly down the road.  Contracts which indemnify one or all parties are more commonly referred to as "hold harmless" clauses or agreements.  Most management agreements have some type of hold harmless clause to protect the Broker in the normal conduct of managing the property.  Make sure you understand the extend to which the broker is trying to push liability onto you as the Owner.

I've seen agreements over the years that basically state that each party will be responsible for their own liability.  Others, unfortunately, stipulate that the Owner will cover all Broker's legal and insurance costs while managing the property.  While this sounds good for the broker, it basically pushes all the burden to the owner.  What if the broker was negligent in their duty?  What if the broker should have foreseen a hazard by inspecting the property as they promised to do but failed to do so and a tenant was injured as a result?  Should the broker be saved from all liability in that case?

Most professional real estate brokers have, or should have, what is known as "errors and omissions" insurance.  This is a type of commercial insurance for professionals which protects the service provider for certain types of mistakes they may make in the conduct of their business.  They should also have some sort of general commercial insurance or an umbrella policy to protect their business if they are large enough of a management business.  The bottom line is make sure you understand the hold harmless clause and ensure it is reasonable before you sign a management agreement.

For more tips on how to scrutinize a management agreement, you may read a Sample Management Agreement with the author's commentary. All the contents of this article are the sole opinion of the author and are not an endorsement or recommendation on any particular business or entity.

If you need help with managing your property email the author at This email address is being protected from spambots. You need JavaScript enabled to view it. or visit http://www.rtphouses.com and submit a request.