Flat-fee pricing is a pricing model whereby a business charges a fixed rate for a service. For example, a store charges a specific price for a gallon of milk or a cup of coffee regardless of who purchases it. Or an attorney may charge a certain hourly rate regardless of who the client is. Flat-fee pricing in the property management industry, however, seems to be a disruptor. Traditionally property management companies have used a percentage model charging a monthly management fee of between 8 and 12% of the monthly rent. Although the service being offered is the same, the management fee fluctuates based on the amount of rent paid. If an average property in the DMV rents for $2100, under a percentage-based model with a monthly management fee of 10%, the monthly fee would be $210, and under the Renters Warehouse DC/NOVA flat fee model the monthly fee would be $129/month a difference of $81/month or $972/year. This is a significant difference and raises several questions.
Why do percentage-based companies charge a different monthly fee for the same service? How can a flat fee company make money at such a low rate?
Proponents of a percentage-based model argue that a flat fee company has hidden fees and/or doesn’t provide quality service. On the other hand, a flat fee company might respond by saying, if you are providing the exact same service for each property, why is there a significant cost difference when the work is essentially the same? In many cases, the properties might even be very similar. For example, we might manage a one bedroom condo in an exclusive neighborhood in NW DC, McLean, Arlington, etc that rents for a very high price. That same condo in a different part of the DMV may rent at a much lower rate. In this example, the work is very much the same, but the fee charged by a percentage based management company will be vastly different. In the flat-fee model there is the assumption that if certain things are in place, the fee can be kept low and consistent regardless of the size of the property or the monthly rent amount. If there is a properly vetted tenant who can reasonably be expected to make timely rent payments, the fee can be kept low because additional resources are not required for collection efforts. Additionally, if the property is in good condition, additional resources are not needed for constant maintenance coordination. Reasonable Owners and reasonable tenants allow us to keep the monthly fee low. However, in the event that additional services are required, it will cost the management company more to manage and additional fees are charged at that time. The key to understanding a flat-fee model is transparency in the management agreement. Make sure you understand any additional charges that might come into play and when and why they are being charged.