Page 243 - Trump University Commercial Real Estate 101

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The Property Management Agreement

When you find the best management company for your property,

make sure that the agreement protects you and motivates them.
Property management agreements come in many shapes and sizes.

Each company will have its own flavor. You can get a pretty good ver-
sion from either the Institute of Real Estate Management at irem.org
or the Building Owners and Managers Association at boma.org . Keep

in mind that these outfits will supply contracts that tend to be weighted
somewhat toward the property management company, but they ’ re a
good place to start.
In any contract there ’ s plenty of boilerplate , or language that is
common to all such contracts. Let ’ s look at the other, more important
items that should and should not be in there.

Spending authority. This clause governs how many dollars a
manager can spend before he has to get approval from you. It
typically ranges from $500 to $5,000, depending on your com-
fort level and the property size. If you make it too small, things
will not get done because the management company will be con-
stantly waiting for approvals. If the amount is too high, the man-
ager may potentially overspend your money.
Establish what the going rate is by talking with your network
of experts in that market, and monitor these expenses. That way,
if you set the amount too high or low, you can soon adjust it.
Reserve account. The company may require that you have a
certain amount of money in a reserve account at all times to fund
operations. If this account is not replenished and the property is
under a constant cash crunch, this may be a reason for the man-
ager to terminate the agreement.
Responsibilities . These will be spelled out in the agreement,
and will relate to both parties. Your main obligations will be to

provide direction, specifications, and plans to the property

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