Property Management Education

The Eight Most Important Parts of a Colorado Property Management Agreement

If you are considering hiring a property management company to lease and manage your Denver rental property, you should do your research including a review of the property management agreement. This legal document defines the legal relationship between the property owner and the property management company and outlines the obligations of each party.

With over 40 years of Colorado property management experience we have seen some good... and some VERY bad property management agreements. Here are the 8 most important questions to ask while reviewing your property management agreement BEFORE you hire the property manager.

1. How Easy Is It To Cancel?

This may sound like a strange first thing to pay attention to. But at some point you may decide to sell the property, or you may decide you want to manage it yourself, or you may decide that you are not satisfied with the property management company and want to 'fire' them. When that time comes - how easy it is to cancel the agreement?

Watch out for 'gotcha' clauses like early termination fees or penalties (which should be $0), or unusually long notice periods (should be no more than 30 days) before you can cancel.

A professional property management company should work to earn your business every day and not handcuff you into an agreement, making it difficult for you to ever to leave the relationship.

We recommend that if you are hiring a property management company, you should demand (yes - DEMAND!) a month-to-month agreement that has no termination fees or penalties.

And yes - our property management agreement is a simple month-to-month agreement with a termination fee of $0.

2. Where Are The Fees Listed?

While ever property management company will charge some fees for their services - be sure those fees are clearly stated in the agreement and not 'hidden'.

All fees should transparent and clearly stated in a 'fee' section of the agreement. We have seen some property management companies try to 'hide' various fees in multiple sections of the agreement. If the fees appear to be hidden throughout the agreement, that may be sign that the property management company is not transparent in how they do business.

Beware of the 'cheapest' firms - in the property management industry the old proverb often hold true 'you get what you pay for'.

View the Grace Property Management fee schedule here.

3. Was the Agreement Prepared by an Attorney?

Property management agreement

The state of Colorado requires by law that a Colorado attorney prepare the property management agreement specifically for that property management company, and this must be disclosed in the agreement.

If this section is not included in the agreement, the property management company is not compliance with Colorado real estate law.

4. How Much Is The Escrow-Reserve?

When you work with a property management company, they are going to collect an escrow reserve from you.

This is your money that goes into a bank account in order to pay for potential expenses that may be incurred between the times of the monthly rent collection.

Escrow reserve funds may be utilized during the month when there is a repair or expense that needs to be paid. There is not a 'right' or 'wrong' amount for this escrow-reserve, but be sure you understand how much it is.

5. How Fast Do I Get My Money?

When your tenant pays rent to the property management company, you want to receive that money as fast as possible - after all... it's YOUR money!

For example, when Grace Property Management collects rent from the tenant at the beginning of the month, we close out our monthly accounting cycle and direct deposit rental funds to our owner-clients around the 10th day of the same month. 

6. How Much Is The Maintenance Trigger?

Maintenance trigger in a property management agreement

As a rental property owner, you don’t want to be bothered with every maintenance issue that comes up, but at what point should a property management company involve you when it comes to spending money on maintenance items?

Every company has a different threshold on when they will involve the property owner before making a maintenance decision. Talk to the property management company to be sure you understand their maintenance communication standards and expectations.

7. Are There Any Guarantees?

If the property management company places a tenant, and that tenant must unfortunately be evicted in the future, who pays the legal fees?

Most companies require the owner-client to pay the legal fees in this type of legal event. However, some property management companies will 'guarantee' the tenant. For example - If Grace Property Management places a resident who must later be evicted due to nonpayment of rent, we pay the cost of the legal fees on your behalf (up to $1,000). Additionally, if a pet causes damage over the security deposit, we pay those expenses (up to $1,000). View our eviction and pet damage guarantee here.

We are able to offer this guarantee because of the high standards in our applicant screening process. This guarantee provides peace of mind to our owner-clients and we believe it is right thing to do.

Ask your Property Management Company what they guarantee. 

View our owner-client guarantees here.

8. Who Handles Evictions?

Evictions should be very rare and are bad for all parties - but if it is necessary - who will take care of this legal process?

A full service property management company should handle the entire legal eviction process on your behalf. After all, that’s why you hired them in the first place – to take care of problems!

What the Agreement Won’t Tell You

While the property management agreement is a required legal document - it can NOT tell you what you need to know most. 

The agreement can't guarantee the customer service level you will receive, the honesty of the company, the professionalism in which they operate, their response time, their commitment to you and your tenant, or any of the other parts of the relationship between the property owner and the management company. And THESE are the most important parts of the relationship.

Selecting a Denver property management company based on the property managment agreement alone is not the best decision. We recommend property owners look beyond the agreement when working with a property management company.

In addition to reviewing the agreement - look for a company who is a good fit for your needs and you feel comfortable with. This will help to ensure a long term successful relationship for you, your tenant, and your property.

Searching for a property management company in Denver? Explore Grace Property Management's online reviews, take a look at our owner resources, and when you’re ready, send us a message or give us a call. We are currently accepting new property management clients in select Denver metro areas.

Explore owner resources »

Unsure of what to do next? Check out our Calculators!

Should I Rent or Sell my Property?
What is the return on investment potential of my property?
How much is my vacant property losing every day?