The market rate of property management fees is an important concern for real estate owners when outsourcing the rental management of their properties to a professional company. Generally, the management fee is "about 3-5% of rent income," but in reality, there is a wide range depending on the area, property type, and services provided. This article explains the basis and background of the market rate for management fees, how to determine the appropriate level, and furthermore, points for negotiation. We will also touch on how to choose a property management company and points that can lead to long-term improvements in real estate profitability, so please use this as a reference for your rental management.
First, let's keep in mind the market price of management fees paid to property management companies. In general, the standard rental management fee is approximately 5% of the rent income. For example, if the monthly rent income is 100,000 yen, the monthly management fee would be about 5,000 yen. However, the actual commission rate varies widely, with many real estate agencies setting their commission rates in the range of 3-8% of the rental income. The main reasons for the wide range in commission rates include regional differences, property types, and the scope of work to be outsourced.
Area (regional) differences: There are differences in market rates between urban and rural areas. In urban areas, the number of properties is large and competition is fierce, so management fees tend to be lower (smaller percentage). On the other hand, in rural areas, the number of management companies is limited, so in some cases, the commission rate is higher. In other words, there may be regional differences, such as 4-5% in Tokyo and other urban areas and over 5%-6% in rural areas for the same services. It is a good idea to understand the market rate in your property area before signing a contract.
Differences in property types and characteristics: Management fees can also vary depending on the type and characteristics of the property. While the fees for a typical residential apartment or condominium are within the aforementioned market rates, the fees for luxury properties or properties with special equipment may be higher than usual due to the time and effort required to manage the property. For example, in rare cases, management fees may be 10% or more for properties with elevators, special security systems, and other equipment that require expertise in maintenance and management. On the other hand, if the scope of management is limited, such as a single detached house, the commission rate may be lower. The size of the property (number of units) also affects the commission rate, and for large properties with many units, it may be possible to negotiate a lower commission rate by streamlining the management process through bulk management.
As described above, the market rate for property management fees is not uniform, but rather fluctuates depending on various factors. However, as a basic premise, there are no clear legal regulations in Japan regarding the upper limits of management fees and calculation methods, and they are determined by market principles. Therefore, rather than saying "X% is the absolute appropriate value," it is important to understand the appropriate range according to the region and property, and to be willing to make a decision by comparing offers from multiple companies.
The amount of the management fee varies greatly depending on the scope of services to be outsourced. In general, the more services that can be outsourced to a management company, the higher the commission rate tends to be. Let's take a look at the specifics of what kind of services affect the commission rate.
Main rental management services (operations) provided by management companies
In general, the basic services included in the management fee are as follows
Rent collection and remittance management: Collects monthly rent from tenants and manages remittance to the owner. This usually includes reminding the owner in the event of nonpayment.
Tenant Relations and Complaint Handling: This service provides a 24-hour window for responding to tenant inquiries and complaints, and resolving problems when they occur. Some companies provide emergency response services at night and on holidays.
Arranging for building and facility maintenance: We regularly patrol the building, arrange for cleaning of common areas, arrange for repair companies when equipment malfunctions, and schedule inspections. Proper maintenance directly affects tenant satisfaction and asset value.
Contract-related procedures: This position also handles tasks related to tenant contracts, such as recruiting and screening new tenants, preparing and signing lease contracts, and explaining important matters at the time of moving in. This may also include renewal procedures and billing for renewal fees on behalf of the client.
Move-out support and restoration: Attend to tenants when they move out, and arrange and coordinate the settlement of security deposits and restoration work. Some management companies offer remodeling proposals in preparation for the next move-in.
These are typical services, but package contents differ depending on the management company. It is important to confirm at the time of contract how much of the basic services are included. For example, if the company only acts as a "rent collection agent," the commission fee can be kept low, but other services such as tenant relations and facility management are not included. Therefore, it is necessary to determine the balance between the scope of outsourcing and the commission fee.
Difference in commission rates depending on the type of management
Depending on the scope of work to be outsourced, the approximate commission rates are as follows.
When only collection and remittance management is outsourced: The market rate for only rent collection and remittance management is approximately 3% of rent income. In this case, the owner will be responsible for handling property complaints and facility management, etc., or will request these services separately. Although this keeps the commission rate low, it should be noted that a certain fixed fee (commission) is incurred even if there are delinquencies or vacancies.
General management outsourcing: The market rate for outsourcing the entire management of a property, from tenant solicitation to move-out procedures, is approximately 5%. Many owners choose this form of general management, allowing them to concentrate on their core business by leaving all the day-to-day details to the management company. The wider the scope of work, the higher the commission tends to be (6-8%). In particular, the commission rate may be higher when generous guarantee services are provided, such as late payment guarantees and equipment guarantees. For example, if a warranty option that covers a certain period of time in the event of rent delinquency is added, the commission rate may be set 1 to 2 percentage points higher.
In the case of a sublease (lump-sum lease) contract: In a sublease where the management company (sublessor) leases the entire property and subleases it to a third party, the rent guaranteed to the owner is set lower than the market rent. In effect, the management fee is usually higher , around 10-20% of the rent. In subleasing, the management company is responsible for everything from tenant recruitment to rent guarantees, so the owner's labor is greatly reduced, but a high fee (reduced rent) is deducted as a risk premium for this. When considering a sublease contract, it is necessary to weigh the benefits of zero vacancy risk against this fee burden.
Zero management fee: In recent years, some property management companies are offering "no (zero) management fee. While this may seem attractive to owners who want to keep monthly costs as low as possible, of course there is no service without a revenue stream anywhere. These companies may generate revenue by separately charging an advertising fee when recruiting tenants or a contract renewal fee as an option. Therefore, before jumping into a "0 yen for the price," be sure to thoroughly check what range of services are included in the basic fee and what the optional fees are. Although you signed a contract because you were attracted by the "free" price, be careful not to end up paying more in total as a result of adding necessary services as options.
When looking at management fee figures alone, it is easy to think, "I want to ask the cheapest company possible. However, what is really important in rental management is to maximize and stabilize the total income and expenditure. Even if the management fee is a little high, if the company offers a full range of services, it may lead to shorter vacancy periods and maintenance of asset values, and as a result, contribute to the improvement of the owner's real estate earnings. On the other hand, if you choose a management company based solely on its low price, and as a result, tenants leave due to poor management, vacancies and frequent departures may increase costs over the long term. Therefore, when selecting a management company, it is essential to find a balance between "commission rate" and "quality and scope of services.
In order to determine the appropriate level of management fees and to select a reliable management company, the following points of view should be focused on.
Check the balance between services and fees: For the fee quoted, check the details of the services included. Be clear about what is included as basic services and where the additional fees begin. For example, "Are cleaning patrols included? For example, ask in advance if there are any questions such as, "Are cleaning patrols included in the fee? Even if the fee is low, if the scope of services is limited, additional costs will be incurred, which may end up being relatively expensive. On the other hand, if the services are excessive and include unnecessary items, the fee rate may be added to the cost. It is important to determine whether the plan is appropriate for the scope of services you are seeking.
Check for track record, reputation, and occupancy rate: The track record (number of units managed and local experience) and occupancy rate of each management company are also important factors to consider. Companies with many years of experience and a large number of properties under management have accumulated know-how and tend to be better at handling problems and attracting customers. It is also a good idea to inquire about the occupancy rates of other properties managed by the company you are currently considering, as well as its methods for dealing with vacancies. A company that has a solid response to vacancy risk is likely to contribute to long-term stable earnings. In addition, Internet word-of-mouth and reputation among fellow owners can be helpful. However, since reputation is subjective, it is important to interview the person in charge to confirm that he or she is trustworthy and that you are satisfied with the explanations.
Transparency of fee structure: Also check if the explanation of fees other than the management fee is clear. You can trust a company that provides a transparent fee structure. For example, "the advertising fee at the time of signing the contract is for one month," "how much is the renewal administration fee," etc. Make sure that the company carefully discloses the costs that may arise in the future. Be wary of a company that has many unclear fee items or cannot answer your questions clearly. The contract will also contain detailed cost terms and conditions, so be sure to read through it and confirm anything that is unclear. In particular, be sure that the company is transparent about the scope of expenses that are not included in the management fee, such as contractor margins when arranging repairs, and handling of periodic cleaning and inspection fees.
Responsiveness and reporting system: It is also important to check whether the company responds promptly and courteously to tenant inquiries, and whether it frequently and accurately reports to the owner. Check to see if the company has a 24-hour response desk for late-night emergencies. Another point to check is the information sharing system, such as whether they provide monthly income and expenditure reports, and whether they provide reports with photos when repairs are made. Although it is impossible to fully understand the responsiveness of these factors until you actually sign a contract, you can get some indication of this from the speed of their response to your questions and the content of their proposals, even before you sign a contract. A management company that is courteous and prompt is worthy of trust.
If you take the above perspectives into consideration, you will be able to select a company that offers value for money, rather than simply a company with a low management fee. It is also effective to request information from multiple management companies and compare quotes. It is wise to compare their strengths, weaknesses, and proposals to find the best partner for your property.
Once you have found a potential management company that meets your needs, try to negotiate contract terms and commissions. Management fees are not completely fixed, and there may be room for negotiation depending on the condition of the property and the owner's side. Here, we will explain the key points to negotiate management fees in a favorable manner.
Key Points for Successful Negotiations: 1.
Research the market rate in advance: As mentioned above, there is information that the market rate is about ○% of the rent, but it is important to get a sense of the market rate that matches the size and area of your property. It will be a good bargaining chip if you also check the management fees of other companies and provide specific figures , such as, "Other management companies seem to charge around fat%. A well-reasoned request is more likely to be accepted.
Clarify the services to be provided: As a prerequisite for negotiations, understand the scope of work you wish to request and the services that are currently being offered. Then, it is a good idea to make a proposal such as "Fat % is appropriate for this scope of work," or to specifically ask if the fee can be lowered by omitting unnecessary 00 services. The management company will be able to make a compromise because the cost will decrease if the services are reduced.
Obtain quotes from multiple management companies: It is more advantageous to compare the terms and conditions of multiple companies than to negotiate with only one company. One way to do this is to cite the quotes of other companies and say, "We would like to work with your company, but would you be willing to consider a few more terms and conditions? However, if you are too aggressive in your price negotiation, it may spoil the impression. Negotiate politely from the standpoint of a proposal that benefits both parties. If you make a proposal that also benefits the other party, such as, "Since you are entrusting us with several properties at once, we would like a volume discount," or "Since we are considering a long-term contract, would you be willing to review your commission rate?
Use the timing of contract renewal or review: If you are already under contract with a management company, the timing of contract renewal is a good time to negotiate. At the time of renewal, review the services and commissions again, and ask the company if they would like to review the commissions in light of the current occupancy rate and income/expense situation. Negotiations are also possible when the income status of the property has changed (e.g., the value has increased after major repairs) or when you are considering changing to another company. Negotiations for periodic review of contract terms and conditions should be exercised appropriately as a right on the part of the owner.
When negotiating, it is important not only to forcefully demand a price reduction, but also to maintain a good relationship. Rental management is a long-term partnership, so be honest in your communication so that you can continue to work together smoothly after the contract is signed. Remember to exchange written terms and conditions, and do not end with verbal promises. Finally, signing a contract in a form that is satisfactory to both parties and building a relationship of trust will lead to entrusting the property with peace of mind.
The appropriate level of management fees cannot be determined by a simple number; it is important to consider the balance between the content and quality of services. As discussed in this article, the market rate (around 3-5%) is only one guideline, and it is not necessarily better if it is low or worse if it is high. What is important is to choose a management company that will be the best partner for the owner's rental management. If you entrust your property to a trustworthy management company, even if the commission rate is slightly different, the owner will benefit greatly as a result by reducing vacancy risk and stabilizing long-term earnings.
So, what exactly is a "reliable partner"? As an example, let us introduce INA&Associates, a comprehensive real estate company with extensive property management experience mainly in the Tokyo metropolitan area and the Kansai region, offering next-generation rental management services utilizing the latest technology. For example, INA&Associates offers unique approaches that combine efficiency and service quality, such as AI-based proposals for optimal rent setting, 24/7/365 full tenant support, and highly transparent information sharing through a cloud-based management system. Furthermore, by designing operations to eliminate conventional waste, we are able to provide high-quality services comparable to those of major companies at the industry's lowest flat fees, thereby contributing to increased profitability for owners. We also ensure transparency in terms of costs, for example, by eliminating intermediary margins in repair arrangements to the greatest extent possible and executing work at a fair price. With this attitude and track record, INA & Associates is one of the most reliable property management companies you can trust.
There is nothing more reassuring for a property owner to receive high quality service at a reasonable management fee. We hope you will use the points in this article to find the best partner for your property, while taking into account the market rates for property management fees. Choosing the right partner is the key to long-term improvement and stability of your property's earnings.