When property owners evaluate third-party management companies, the management fee often dominates the conversation. However, industry experts suggest that this focus may be misplaced, with other factors having a greater impact on the bottom line. Ron Kutas, Chief Executive Officer 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.
Kutas illustrates the point with simple arithmetic: a 25 basis point reduction on the management fee for a property with a $2 million rent roll saves $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," he says. The questions that truly move the outcome, in his view, are how quickly a manager turns units and its bad-debt policy.
He further warns that a manager willing to drop from 3 percent to 2.5 percent must recover that half point elsewhere. This could manifest as higher billbacks, more home-office personnel charged to the property, or reduced attention to the asset. A fee that seems too low to be profitable often is not as low as it appears.
The line Kutas says owners should press on is chargebacks—the costs billed back to the property on top of the fee. He frames it as a test: ask a manager to walk through every billback beyond the management fee. A revenue-driven company tends to be vague, while an owner-operator has a schedule ready to send and can explain each charge's purpose.
Reporting quality also offers clues before signing. Kutas points to generic parent accounts on the chart of accounts as a warning sign—a single "repairs and maintenance" line rather than a breakdown into paint, electrical, plumbing, and more. "The less detail, the more concerned I'd be," he says, as thin reporting can hide undifferentiated spending.
The industry's lack of standardized chart-of-account structures and varying expense approval thresholds (from $500 to $1,000 or a percentage over budget) leave the expense side opaque. This fragmentation is why the fee, the one clearly visible number, becomes the default negotiation point.
People-related questions are also crucial. Kutas advises owners to ask who the regional manager assigned to the property is, their track record, and tenure with the firm. A regional new to the role or unfamiliar with the asset type is a caution signal. Additionally, owners should inquire about backup when a community manager or service manager is unavailable. A firm with genuine bench strength is preferable to one relying on temporary labor. Lack of bench strength is a common reason OneWall declines assignments.
Owners often misattribute underperformance to the manager when it stems from a soft market or vice versa. Kutas suggests using data and self-awareness: market performance can be checked against public figures, and ownership patterns reveal issues—"If you're on your third manager in four years, it's probably not the management company."
Kutas emphasizes the value of a manager willing to turn down business. "We sell attention and labor," he says. A firm that stretches itself thin to win every contract may be less able to serve any single client well. As owners become more discerning, managers who can answer the harder questions in detail are likely to stand out from those competing on price alone.
For more information, visit onewallcommunities.com.
