Managing agent fees: what should you pay?

It’s like saying “eating an apple a day keeps the doctor away”; factually it’s not correct but it makes society feel better about eating one of their five a day. In the case for managing agents’ fees the opening phrase can be seen simply as a justification that a higher fee proposal represents a better service.

Of course there are exceptions, but across the board there does not seem to be any correlation between fees and levels of service. You may assume that a fee of, say, £700 per unit belongs to the ‘higher end agent’ or the one that offers ‘better service’ than an agent charging £150, but regrettably this isn’t the case.

There are a mass of varying factors one must consider when agreeing to a fee; the number of units within a development, the level of complexity, whether there are any other services that need to be managed (gyms, spas, cinemas etc), number of staff appointed on a scheme, location…the list goes on.

The tendering process also plays its part in the biased and skewed world of fee levels. Developers are often offered a favoured rate. A principle reason is largely down to the number of units on a scheme but also the chance for continuous work within their portfolio or the ease of dealing with one freeholder as opposed to a residents’ association. It could simply be the prestige.

This may not necessarily be fair, and the reality is that every block requires the same basic services; production of a budget, serving year end accounts, management of contracts and services.

For some managing agents it may make perfect sense to show a preference to developers and their stock, after all, rumour has it that house builders pay far less attention to the detail than a residents association.

Sorry to disappoint but gone are those days. In come a wave of developers employing in-house property and asset managers to scrutinise and manage the agents. Acceptances of fees just because we are told they are ‘fair and reasonable’ are no more. Rather, how are costs substantiated, who says they are fair, how are they justified?

There is no simple answer. Ultimately managing agents’ fees are fully subjective and need to be considered in the context of the development and the aforementioned factors. There is currently very little in the way of benchmarking or setting a fixed scale for fees as the determination.

As to whether they are ‘right’ comes down to what the freeholder wants. If they want the best possible price with unrivalled service, do they receive that? The jury is still out.