Property Management Fees Mislead Owners: Focus on Details, Says OneWall CEO

When hiring a third-party property management company, owners often focus on the management fee, but industry veterans argue this is a mistake. Ron Kutas, CEO of OneWall Communities, an owner-operator that also offers third-party services, explains that a 25 basis point fee reduction on a $2 million rent roll saves only $5,000 annually, while a 200 basis point difference in bad debt amounts to $40,000. He urges owners to look beyond the fee and examine unit turnaround times and bad-debt policies, as these have a far greater impact on profitability. Moreover, Kutas warns that a manager who drops their fee from 3% to 2.5% will likely recover that loss through higher billbacks or reduced service, making the apparent savings illusory.

Kutas emphasizes the importance of scrutinizing chargebacks—the costs billed back to the property beyond the management fee. He advises owners to ask managers to detail every billback; a revenue-driven company tends to be vague, while an owner-operator like OneWall can provide a clear schedule and rationale. Additionally, he points to reporting as a red flag: generic parent accounts in the chart of accounts, such as a single "repairs and maintenance" line, indicate a lack of detail and potential hidden inefficiencies. The industry's lack of standardization in chart-of-account structures and expense approval thresholds further complicates comparisons, making the fee an easy but misleading target for negotiation.

Kutas also stresses the human element. Owners should inquire about the assigned regional manager's experience and tenure, as well as the company's backup plan for staff absences. A firm that lacks bench strength may resort to temporary labor, which can compromise quality. He cautions against blaming managers for poor performance when the market is soft, suggesting that owners should compare against public data and consider their own history—if they've had three managers in four years, the problem may be internal. Finally, Kutas values managers who are willing to turn down business, as this indicates a focus on quality over growth. As owners become more discerning, those who can answer tough questions with transparency will stand out.