What does this mean to double dip on lease fees and management fee commissions at the time of a move-in? Let’s start with where the issue begins.
The problem begins during the move-in process when the property page is set to charge a lease commission placement fee and a percentage of the rent for the management fee. This may result in overpaying your management company in the month of the move-in.
This isn’t an issue if your property management company considers the placement fee and management fee as being independent of each other. Property managers might establish that these fees mentioned are unique fees and should be charged separately. If the property manager wishes to waive the management fee when there is a leasing fee, then the fee can be reversed. This would require a Standard Operating Procedure (SOP) and it’s not always easy to remember to manually reverse these items at a later time.
Some may feel they prevent this as a problem by setting the Commissions/Placement GL account as not “Subject to management fees”. However, the Commission/Placement fee is a bill that is posted to your account upon the completion of a move-in and the management fees are based on rent income, thus causing a double dip issue - first month’s rent will generate a bill to your management company for the percentage set on the property, in addition to the placement fee bill.
To avoid this, many property managers will set up a First Month’s Rent income GL account that is not subject to management fees. This setup will alleviate the pressure put on a property manager to remember to reverse the management fee bill associated with first month’s rent when it is posted to the key Rent Income account.
The only thing you will need to remember is to reverse the charge to your key Rent Income account that posts automatically as of the Lease Start date. No more worrying about reversing a bill, or a portion of a bill, when it comes time to pay your management company!
Another option, and maybe the best suited, would be to make the lease fee something like 90% as an example and then the management fee would be 10% in this example. This should prevent duplication of fees because the 10% you collect on Rent Income will make up the difference between what you collect in commission at 100% versus 90%
You have a new tenant moving in, you’ll need to decide if you want to charge a new (or existing) First Month’s Rent GL account, reverse a management fee bill, or adjust the percentage collected under your Lease Fee settings, and then execute the appropriate process to achieve that goal.
You’ll also want to choose your process based on if the management fee is charged at the time the particular move-in is complete as well as consider your company’s policies and workflows. These are just ideas and brainstorming. There isn’t always just one way to resolve an issue and busy property managers don’t always have to figure out all of the confusion on their own.
APM Help is here for you and to help with your perfect consulting solutions.Helping the Property Management Community one topic at a time,Theresa@APMHelp.comps. Do you have questions or comments? Feel free to post them in response to this blog or contact us directly for a free consultation!