When owners evaluate third-party property management companies, the comparison often begins and ends with the management fee. It is the most quoted figure, easy to compare, and seems like the lever owners control. However, according to operators who have experienced both sides, the fee is one of the least important numbers in the decision-making process.
Ron Kutas, CEO of OneWall Communities, an owner-operator that also provides third-party management services, argues that fixating on the fee steers owners away from where the real money moves. He illustrates with simple arithmetic: a 25 basis point reduction on a $2 million rent roll saves an owner about $5,000 annually, whereas a 200 basis point difference in bad debt at the same property amounts to roughly $40,000. "You're negotiating one of the smallest numbers on the page," he says. The factors that truly impact outcomes are how quickly a manager turns units and the bad-debt policy.
Kutas further explains that a manager willing to lower the fee from 3% to 2.5% must recover that half point somewhere. Often, it reappears as higher billbacks, more home-office personnel charged to the property, or reduced service. A fee that appears too low to be profitable usually isn't as low as it seems.
The area Kutas advises owners to scrutinize is chargebacks—costs billed back to the property on top of the fee. He suggests asking managers to walk through every billback item. Revenue-driven companies tend to be vague, while owner-operators have a schedule ready to explain each charge and its purpose.
Reporting quality also reveals a manager's transparency. Kutas points to generic parent accounts on the chart of accounts as a red flag, such as a single "repairs and maintenance" line instead of detailed categories. "The less detail, the more concerned I'd be," he says, as thin reporting can hide inefficiencies.
The industry lacks a shared standard for chart-of-accounts structures, bad-debt policies, and expense approval thresholds, which vary from $500 to $1,000 or a percentage over budget. This fragmentation makes the expense side opaque, leading owners to default to negotiating the fee, the one clearly visible number.
Kutas also emphasizes people over price. Owners should ask about the regional manager assigned to the property, their track record, and tenure with the firm. A regional manager who is new or lacks experience with the asset type is a concern. Additionally, owners should inquire about backup plans when community or service managers are absent. Kutas notes that insufficient bench strength is a common reason OneWall declines assignments.
Owners often misdiagnose underperformance, attributing it to the manager when the market is soft, or vice versa. Kutas suggests comparing market performance with public data and self-reflection: "If you're on your third manager in four years, it's probably not the management company."
Finally, Kutas values managers who are willing to turn down business. "We sell attention and labor," he says. A firm that overextends itself to win contracts cannot serve any single property well. As owners become more skeptical of headline fees and more attentive to expenses, managers who can answer detailed questions will stand out from those competing on price alone.
