Property Management Percentage based on gross or net revenue or (net being less host fees) @airbnb

[Marina1328]

Hi

Hoping a savvy property manager or co-host  can help me here.

I need to ascertain industry practice for property managers who receive their commission from revenue from owner owned units.  Since airbnb has changed to a host only fee structure (15% + vat/tax) in 2021, what is the industry standard baseline for  the property management percentage: does the fee  get calculated off the gross revenue (value of nights booked plus  host fee) or does the percentage get calculated off the net revenue which would be the value of the nights booked only.   I am leaving the cleaning fee out of this to make it simple.   An example of this would be

Gross Revenue 

Value of nights booked 1000.00

Host only fee 150.00

Total Gross 1150

20% Property Management fee off gross = 230.00

Net Revenue

Value of nights booked 1000

Less host fee 150.00

Total Net 850.00

20% Property Management fee off net 170.00

Difference 60.00

In the old days of 3%+vat/tax, this figure was hardly significant, however now at 15% + vat/tax is it highly significant.

On a gross revenue of 20,000 and receiving commission percentage on the gross (nights+host fee), it would be 4000

On a net revenue of 20,000 and receiving commission percentage on the net (nights less host fee), the revenue would be 17000 and the 20% commission 3,400.

Difference of 600.00 

[Lorna170]

@Marina1328   Property management companies should not be calculating their percentage on the amount of rent including taxes or a service fee paid to AirBnB -- it should be only on the amount that is net to the owner.  Check your contract.

[Marina1328]

Thank you. Here is a bit more detail:  My contract states my commission is on 'gross'. There is no delineation about if that gross is net of the airbnb host fee (service fee).  

I now have one owner bringing this issue up. 

Contract wording: 

"The Property Manager shall retain a percentage of 25% of all gross vacation rental proceeds, less the cleaning fee, for services described."

1.  

Gross in this case means to me the gross revenue. The entire revenue.  By airbnb deducting  the host fee from the payout, does not alter the fact that it is the gross value of the booking that the commission is based on.  That is the cost of the owner doing business with airbnb. My commission has never been net of the host/service fee as the commission is based on the total booking value - nights+host fee = total booking value.

Your view? 

[John2406]

@Marina1328 @Mike-And-Jane0 @Lorna170

Although I don't deal with a Property Management Company, your question does  highlight the vagaries of how some Contracts are drawn up, and how some Companies are able to "get away" with blue murder!

Having said that, the words Gross and Nett are often misinterpreted, as in effect, "Gross" is a figure off which everything that has to be deducted, is, in order to reach a Nett amount.

"Nett" is the Profit that one is left with after ALL outgoings been disbursed.

As you can see from that, deducting only Airbnb's commission from the Gross amount does therefore not leave you with a Nett amount.

Personally if it was me (and I usually go through any T&C's , Contracts etc with a fine tooth comb before I agree to anything - or not) I would make initial contact by phone with your Property Management Company to ask them to clearly explain how their calculations are reached, and what their deductions are based on, and ask them to please confirm same in writing to you.

If their Contract is ambiguous to the extent that what is contained within it can easily be misinterpreted by both themselves and their Clients (you) I would suggest that Citizens' Advice might be able to point you in the right direction.

The important part is not to get one's Gross and Nett confused, but far more important is for the Property Management Company to clearly spell out to you what their own meaning of the words mean.

All the best.

[Marina1328]

thank you. I think the crux is the difference between GROSS PROCEEDS and NET PROCEEDS.

What are Proceeds? Proceeds are the funds received from a sale transaction. This amount is classified as gross proceeds when the amount is prior to the incurrence of any related expenses such as commissions, credit card fees, or the cost of goods sold. When the amount refers to the outcome after these costs are incurred, it is classified as net proceeds.

So in this case if the contract states gross proceeds, then their commission is based on this number.  

Do you agree? 

[Mike-And-Jane0]

@Marina1328 no I don't agree

[John2406]

Hi again @Marina1328  (just a quick bit of wondering only part before I head to bed!)

Apart from the addition of the word "proceeds" ,  I'm a bit lost, as are you saying that the Property Management Company should be deducting their Commission off the Total Gross figure, or off the Gross amount after Airbnb's own Commission has been deducted? and of the two, which would you prefer the PMC did?

Personally I would prefer the latter to have taken their Commission off the amount left after Airbnb had deducted their own Commission, but I'm not too certain whether that's what has happened or what you want!

Incidentally, "Gross" and "Nett" don't really need qualifying by the addition of the word "proceeds" as by their very meanings, they encompass everything!

Right then, bed is calling "John, where are you?") so I'd better get some shut-eye!

Night night one and all;  another day will soon be here!

[Marina1328]

Hi, 

Let me explain. 

I am the PMC and I have been using this gross revenue fee structure  model for 12 years. I have been working with a newish owner who, after almost a year of managing their unit, is querying the gross versus net proceeds. I have never had any owner query this in my entire time of property management  so it is somewhat alarming to me that he has brought this up. 

This owner is stating that 'one can only retain from what one has obtained from. i.e one cannot retain a percentage of someone else's proceeds.'   He is referring to the airbnb/host fee as not belong to him but belonging to airbnb. 

I said I did not agree with this theory because the gross revenue figure (or the total booking value inc. the host fee) is part of the owner's gross revenue therefore, inherently,  this gross revenue belongs to him. Not airbnb. airbnb charge a % much a credit card company charges a retailer to use their credit card. 

In any case, as you say,  gross is gross and net is net. The PMC contract states gross proceeds, not net proceeds. 

I have rendered the service based on the gross booking value and therefore should be paid the commission based  on that gross booking value.  The airbnb host fee is the owner's  cost of doing business and in doing so he also uses these fees as a tax deduction. They belong to him. Not airbnb. 

It may well be that some PMC's do base their commission on the net proceeds i.e less the airbnb host fee and some may not.  Analysing this within this community would likely prove inconclusive as everyone will do it a bit differently judging by other replies on this thread.

The fact that airbnb deducts this fee before a payout does not make this fee 'belong to airbnb'. It is a cost of the owner doing business: commission, fees whatever you want to call it. 

The good news/sliver lining in all this is that because of the airbnb change  of the host/guest fee split (3%+vat/tax host to and guest 12%+vat/tax )  to a host only (15%+vat/tax), I  raised the night rate to allow margin for absorbing the extra cost. This has resulted in the owner's net profits increasing by a very significant amount. Yes is paying more fees to airbnb and yes he is paying more commission to me because my commission is based on gross proceeds, but he is also netting  a lot more profit  than the previous owner (he took over the unit last year).  

The adjustment this owner is asking for would mean a big loss of earnings for me if this was to be clawed back. 

When the host fee was 3% it was hardly worth thinking about. Now at 15% it is significant and across a year of bookings, it is a big amount.  

[Mike-And-Jane0]

@Marina1328 depending on how your owner feels I can see this one ending up in the small claims court. As I said before any ambiguity in the contract will go against the person (presumably you) who wrote the contract. If I were you I would settle with this customer and then make your contract clearer.

[Mike-And-Jane0 · Accepted solution]

@Marina1328 the wording in your contract states "25% of gross rental proceeds" As the word proceeds are there I would read this as the proceeds received from Airbnb hence it is the amount AFTER Airbnb's commissions and any taxes.

If the contract meant the amount paid by the guest then it should say that. Proceeds is clearly an amount received NOT an amount paid by the guest.

Now if the contract  is not clear then the courts will usually rule AGAINST the party who drafted the contract. So if you (or your lawyers) wrote it then you will lose in a court of law.

[Mike-And-Jane0]

@Marina1328 your example is faulty I am afraid

It should be

Amount paid by guest = 1150

host only fee at 15% = 172.5

Net paid to host = 977.5

if management fee is 20% then

Taken from guest payment it would equal 230

Taken from host payment it would equal 195.5

Difference = 34.50

But your question is still validated answered by @Lorna170  although the truth is a management company can take their charge off whatever figure they choose IF you allow them

[Pat271]

@Marina1328  Just to provide another datapoint, I had a property manager who managed several hundred units for a few years. They listed my property on several platforms, I assume each with different host fees. They charged me 23% of the nights booked. Collections from the guest for taxes, cleaners, etc. were passed through to me. They did not pass through the platform host fee. It was simple - just 23% off the gross nightly rent.