Property Management Fees Mislead Owners, OneWall CEO Says

When property owners compare third-party management companies, the management fee is often the primary—and sometimes only—factor they consider. But according to industry executives, this approach is misguided, as the fee is one of the least significant numbers in the decision-making process.

Ron Kutas, Chief Executive Officer of OneWall Communities, an owner-operator that also provides third-party management services, emphasizes that focusing solely on the fee overlooks where the real financial impact lies. He illustrates this with simple math: a 25 basis point reduction in the management fee for a property with a $2 million rent roll saves the owner about $5,000 annually. In contrast, 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,” Kutas notes, urging owners to consider factors like unit turnover speed and bad-debt policies.

Kutas also warns that a manager willing to lower the fee from 3 percent to 2.5 percent must recover that half point somewhere else, often through higher billbacks, additional home-office personnel charged to the property, or reduced attention to the asset. A fee that appears too low to be profitable likely comes with hidden costs.

The critical area owners should scrutinize, according to Kutas, is chargebacks—the costs billed back to the property on top of the management fee. He advises owners to ask managers to detail every billback. Revenue-driven companies tend to be vague, whereas owner-operators like OneWall have a transparent schedule ready to explain each charge and its purpose.

Reporting quality also provides clues before signing a contract. Kutas points to generic parent accounts on the chart of accounts as a red flag. For example, a single “repairs and maintenance” line instead of a breakdown into paint, electrical, plumbing, and other categories indicates a lack of detail. “The less detail, the more concerned I’d be,” he says, as thin reporting can hide undifferentiated spending.

The industry’s lack of standardized accounting practices compounds the problem. Chart-of-account structures and bad-debt policies vary widely among firms, as do expense approval thresholds, which can range from $500 to $1,000 or a set percentage over budget. This fragmentation makes the expense side opaque, leading owners to default to negotiating the one clearly visible number: the fee.

Kutas also stresses the importance of people, advising owners to ask about the regional manager assigned to their property—their track record and tenure with the firm. A regional manager who is new or lacks experience with the asset type warrants caution. Additionally, owners should inquire about backup plans when a community manager is on leave or a service manager is out for two weeks. A firm with a genuine bench of qualified staff is preferable to one that relies on temporary labor. Kutas notes that insufficient bench strength is a common reason OneWall declines assignments.

Misdiagnosing underperformance is another pitfall. Owners often blame managers for issues stemming from a soft market or vice versa. Kutas advises using publicly available market data to check performance and considering ownership patterns. “If you’re on your third manager in four years, it’s probably not the management company,” he says.

Ultimately, Kutas believes owners undervalue a manager’s willingness to turn down business. “We sell attention and labor,” he explains. A firm that stretches itself thin to win every contract cannot adequately serve any single property. As owners become more skeptical of headline fees and more attentive to expense details, managers who can answer the harder questions transparently will stand out from those competing on price alone.