Property management fees in Queensland: letting and management commission

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Kooky

Builder of Shaka, the payment router that pays every agent their commission on closing date.

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A sales commission is paid once. A property management fee is paid every time the rent comes in, for as long as the tenancy lasts and often for years beyond it. It is a small amount each week and a meaningful one over the life of an investment, and for the agency it is the steady income that keeps the office open between sales.

Queensland treats these fees in the same way it treats a selling agent's commission. There is no schedule and no ceiling. The owner and the agent agree what will be charged, and the agreement has to be recorded on the appointment before the agent starts work. This guide goes through the fees a Queensland owner is likely to meet, using the Queensland Government's own list as the frame. It explains how each is calculated, what the appointment has to say, how the arrangement can be ended, and how the tax office treats the cost. It quotes no going rate, because none is prescribed.

Queensland Government guidance on property management fees and on appointing a property agent; Office of Fair Trading guidance on charging commission.

Negotiated, like a sale commission

The Office of Fair Trading's guidance on charging commission covers selling and letting together, and its central statement applies to both: there is no cap, and agents and clients may negotiate freely.

For owners this means that the percentage a managing agent quotes is an offer, to be weighed against what other agencies quote and against what each of them does for the money. The Queensland Government's guidance for investors says as much. It advises owners to negotiate fees before appointing anyone, to have them documented, and to compare agents on the quality of their service as well as on price.

For agencies it means that fees reflect their own costs and their own judgment about what a property will demand. An older house with a large garden and a history of repairs takes more of a property manager's week than a new apartment in a managed building.

What the appointment must list

A property manager, like a selling agent, cannot act until appointed in writing. The Queensland Government's guidance on appointing a property agent names the documents: Property Occupations Form 6 for residential property and Form 6A for commercial property. The agent should give the owner a copy.

According to the same guidance, the form specifies the charges for the agent's services, any other costs the agent could incur on the owner's behalf, such as advertising, the dates on which payments are due, and the services to be provided and how they will be delivered.

The Office of Fair Trading states the requirement in more formal terms. The appointment must state the fees, charges and any commission for each service, any other expenses, and the due dates for payment. The commission must include GST, and the appointment must clearly say that it does. The commission is set in writing at the time of the appointment and cannot be altered afterwards. And the appointment must not contain unfair contract terms.

The phrase "for each service" is worth dwelling on. A management appointment usually covers several distinct pieces of work, each with its own charge. An owner should be able to find every one of them on the form and its attached schedule. A charge that does not appear there has not been agreed.

The Queensland Government's guidance on property management fees and charges describes four kinds of charge.

Each is taken in turn below.

Letting commission

The letting commission is a one-off payment for finding a tenant. The Government's guidance describes it as made at the start of a new tenancy, to pay the agent for advertising and for the work of setting the tenancy up, and notes that it will usually come out of the tenant's first rent payment.

That last point describes the mechanics and should not be misread. The commission is the owner's cost. The agent collects the first rent on the owner's behalf, deducts the agreed letting commission from it, and passes on the balance. The owner sees a smaller first payment.

The work it covers is the busiest period in a tenancy. The property is photographed and advertised, inspections are held, applications are checked, a tenant is chosen with the owner's approval, the tenancy agreement and the entry condition report are prepared, and the bond is taken and lodged.

How the commission is expressed is a matter for the appointment. It may be an amount equal to a stated period of rent, a flat sum, or a percentage of something. Whatever the form, the dollar result should be calculable from the appointment and the rent.

Because it is charged per tenancy, its annual cost depends on how often the property changes hands. A tenant who stays four years triggers one letting commission. Four tenants in four years trigger four. Some appointments also provide for a charge when an existing tenancy is renewed, which is a separate item and, like any other, applies only if listed.

Commission on rent

The ongoing charge is what most people mean by a management fee. The Government's guidance describes it as charged on regular rent payments, to pay the agent for managing the property and the rent, and observes that many agents set it as a percentage of the rent received from the tenant.

A percentage of rent has a useful property. The fee is earned only when rent is collected. If the home is vacant, or the tenant has stopped paying, there is no rent and so no commission on it. The agent's income depends on the tenancy working, which lines up the agent's interest with the owner's.

A worked example shows the arithmetic. The figures are illustrative and are not market rates. Assume a weekly rent of $600, a commission on rent of 8 per cent including GST, and a letting commission equal to one week's rent including GST.

The commission on rent is 8 per cent of $600, which is $48 a week. Over 52 weeks of occupancy that is $2,496. The letting commission in the first year adds $600. The two together come to $3,096 on rent collected of $31,200, which is 9.9 per cent of the rent in a year with a new tenancy. In a later year with the same tenant and the same rent, the cost is the $2,496 alone, or 8 per cent.

A vacancy changes the sum. If the same property stood empty for four weeks between tenants, rent would be collected for 48 weeks, a total of $28,800. The commission on rent would be 8 per cent of that, or $2,304, which is $192 less than in a full year. The agent's income falls with the owner's, though by a much smaller amount than the $2,400 of rent the owner has gone without.

Some agencies quote the ongoing charge as a flat amount per week or per month. A flat charge does not rise with the rent, and it does not fall when the property is empty unless the appointment says it stops. Converting each offer to dollars for a full year and for a year with a vacancy, as above, puts a percentage and a flat charge on the same footing.

Two things follow from the example. The percentage quoted for management is not the whole cost in a year when the tenant changes. And because the commission is tied to rent, it rises when the rent does. A rent increase to $630 a week would lift the weekly commission in the example to $50.40.

Holiday letting commission

Where a property is let to holidaymakers, the Government's guidance notes that an agent may charge commission on the payments made for bookings.

Holiday letting is a different business from residential tenancy management. Guests come and go every few days. Each stay involves a booking, a payment, cleaning, linen and a check of the property. The commission is charged on booking income, and the rate reflects a workload many times that of a long tenancy.

The same disclosure rule applies. The commission and every associated charge must be on the appointment. Owners of units in holiday complexes often deal with an on-site letting agent. The Queensland Government's page of property industry forms covers the appointment of resident letting agents alongside real estate agents, and the principle that fees are agreed in writing in advance is the same.

Repairs and supervision charges

The fourth item on the Government's list carries its own safeguard. An agent may make an additional charge for supervising repairs or replacements, but the guidance is explicit: the owner must agree in writing in advance before they do this.

The distinction to keep in mind is between the cost of a repair and a charge for overseeing it. The plumber's bill is an expense the agent pays on the owner's behalf from the rent. A supervision charge is the agent's own fee for arranging and checking the work. The first is inevitable in owning property. The second arises only if the owner has agreed to it in writing beforehand.

The Government's guidance on appointing an agent adds a duty that bears on this. A property manager must respond quickly to requests for maintenance or repairs and must act in the owner's best interests, including when getting quotes.

Other items on a schedule

The four charges above are the ones the Government's guidance names. Agencies' schedules often run to more lines than four, and the rule for all of them is the one the Office of Fair Trading states: the appointment must list the fees and charges for each service, with the due dates.

An owner reading a schedule can therefore ask the same three questions of every line. What service does this pay for? How is the amount worked out? When and how often is it charged? A line that is charged per event, such as a tribunal attendance, costs nothing in a year when the event does not occur. A line that is charged monthly or annually, whatever happens, is part of the fixed cost of the appointment.

Comparing agencies means comparing whole schedules. One agency may quote a higher commission on rent and charge for little else. Another may quote a lower commission and bill separately for statements, inspections and renewals. Working out the total for a typical year, as in the example above, shows which is which.

How long the appointment lasts and how it ends

A sales appointment has a short life. A management appointment is usually open-ended. The Queensland Government's guidance says that in most cases these appointments are ongoing, with no defined end date.

Either side can end one by written notice. The guidance says the owner must give a minimum of 30 days' notice, or less if both parties agree. The Government's fees guidance makes the related point that once an appointment has ended, an owner is free to move to an agent offering better terms.

The same guidance carries a warning about timing. An owner who appoints a new agent before the current appointment has ended may be liable to pay commission under both appointments, or damages for breach of contract. The safe order is to give notice, let the notice period run or agree a shorter one in writing, and then start the new appointment.

For the agency, the notice period gives time to hand over keys, records and the tenancy file in good order.

GST and the tax position

The fees on a Queensland appointment are GST-inclusive figures, as the Office of Fair Trading requires. An 8 per cent commission on the form is 8 per cent in total.

Most owners of residential rental property cannot recover that GST. The Australian Taxation Office explains that rent from residential accommodation is input taxed. The owner does not charge GST on the rent, and cannot claim credits for the GST included in costs relating to the rental. The tax office names an agent's commission and repairs and maintenance among those costs.

Income tax is a separate question from GST and is outside the scope of this guide. The treatment of rental expenses in an owner's tax return depends on the owner's circumstances and on rules the tax office publishes for rental property owners.

What published figures can and cannot say

Because no regulator collects management fees, published figures are scarce and come from private sources with their own samples.

One example gives a sense of how they read. On 20 October 2021, the trade publication Elite Agent reported the annual rent roll market report of Real Estate Dynamics, a firm that brokers the sale of management portfolios. For the 2020-21 financial year it put the average management fee in Queensland at 7.43 per cent, up from 7.27 per cent a year earlier, and the median annual management income per property at $1,698. Across the eastern seaboard as a whole the average fee was 6.8 per cent, down from 6.98 per cent.

Those figures are several years old and are drawn from portfolios that were valued for sale, so they describe that sample at that time and should not be read as a current rate. They illustrate two lasting points. Fees differ between states and move from year to year. And the dollar income per property depends on rents as much as on the percentage.

Weighing the fee against the work

The Queensland Government's advice to owners is to compare agents on service as well as on price, and the nature of the work explains why.

A managing agent collects and accounts for rent, lodges and deals with the bond, carries out entry, routine and exit inspections, arranges repairs, handles notices and renewals, and represents the owner if a dispute goes to the tribunal. Queensland's tenancy laws have changed repeatedly in recent years, and keeping an owner compliant with them is a growing part of the job.

A lower fee is a saving if the service is the same. If it comes with slower repairs, longer vacancies or missed inspections, it may cost the owner more than it saves. The appointment form is the place where both halves of the bargain are recorded: the services the agent will perform and the fees the owner will pay for each of them.

A management fee is a small weekly number that compounds into a large one. The appointment is the only place where every part of it has to be written down.

Kooky, from Shaka

Kooky edits Queensland Estate and builds Shaka, the payment router he made for Queensland property professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

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