EPMEPM: First Person

The real cost of discounting: Nick Brown

How many times has a potential client asked you to lower your fees in a listing presentation? Everyone wants growth, but at what cost? Nick Brown examines the pros and cons of discounting fees.

Recently I put forward a proposal to an owner who was looking at changing managing agents, only to find out they thought our fees were too high for the socio-demographics of the property’s postcode.

When I asked why they were considering changing agents, they said, “They do an OK job, but I am unsure of their financial stability as a business and want a better service.”

To summarise, we have an owner who is paying basically nothing in management fees, who is worried about the financial stability of his current agent, and doesn’t want to pay what I have proposed.

The owner alluded to the fact they didn’t want to spend more than they were paying but wanted better service than they were getting.

This got me thinking.

Why is it that we, as an industry, tend to low-ball ourselves when it comes to winning business?

Are we really happy to undercut ourselves when it comes to fees simply so we have another rental on the books as a statistic?

If we have to discount to win the business, does the revenue we generate still make the management worthwhile?

Don’t get me wrong, I don’t think we should be charging fees over and above the services we are offering, but what is your business worth to you and your team?

If you are in a market where competition is stiff and offering a financial incentive is one way of being a step ahead, then look at offering one-off incentives instead of reducing the fee for the life of the management.

For the licensees and business owners reading this, I implore you to revisit your practices if discounting fees is one of the ways you win business.

Instead, look at ways you can promote your business and the services you offer.

If you believe in what you do, then your new clients will believe it too.

The more fees are stripped from any management agreement, the more properties a property manager must look after to balance the books overall.

This puts you at risk of property manager burnout, team changes and instability in your business.

If you are in a market where competition is stiff and offering a financial incentive is one way of being a step ahead, then look at offering one-off incentives instead of reducing the fee for the life of the management.

Incentives could include waiving a letting fee for the first tenant (in most cases this is the equivalent of one per cent discount on fees for almost two years) or the agency offering to pay for the first year of the smoke alarm compliance package.

Show the property owners how they can achieve upfront savings compared with a small saving of a few dollars in a discounted management fee each week.

I bet the owner who has had the property vacant for a few weeks would love not to lose another week of rent in fees and charges at that point.

Another way to look at the financial incentive is offering a discount for multiple properties.

This doesn’t have to be one owner with various properties; it may be that they refer you to family and friends.

If you manage all the properties as part of that referral an incentive in fee is offered.

It’s always interesting to weigh up what a property is worth to your business, along with how much it costs to manage that particular property.

Often the owners that want you to cut fees will be the owners that expect more attention from you as a business.

Think outside the square – believe in yourself, your team and the services you provide.

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