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Midweek Motivation Exercise No Contracts? No Problem.

In my 2022 Predictions Piece, I explain how big money and roll-ups will fuel the one-of-a-kind or Limited Edition players in the vacation rental industry. Said another way, the small businesses that accelerate in the direction of family/local/specialized/surprises will not just enjoy new-found demand -- the sector's tailwinds will satisfy their wildest business dreams.

Here's a prime example: I visited Mike @Godfrey (see attached) in Sun Valley, Idaho and WOW what a special place. Despite the fact that Mike has no full-time employees other than his kids, Mike runs an extremely profitable ship from his laptop wherever he happens to be (most often a coffee shop -- he has no office).

When Vacasa approached Mike about purchasing his family business a few years ago, he revealed the fatal flaw: Michael's Vacation Rentals operated with no contracts: purely handshakes and goodwill. Meaning, a homeowner could leave Mike's fleet (or a service provider could end their relationship) at anytime they wished (and vice versa). Mike explained to me this acts as a magnet to encourage all players to add value: an open market where the most respect and trust wins! And as you might imagine, Vacasa decided to pass on the purchase because a business without contracts wasn't of value to them.

But that meant nothing to Mike! Today, Mike is passing the business down to his kids (who argue Mike will never stop working) with plans for expansion (but nothing that would compromise their part-time jobs as ski instructors) and this is for me EVERYTHING that makes small businesses so special.

QUESTION: I normally start these threads off with an idea and an action. But truthfully I don't know what the lesson is here ("Don't use contracts" it is surely not.) So I am asking other members to share what they think the lesson might be as we enter 2022...
 

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Walter

Walter- Villas de Cerritos Beach, Mexico
Inner Circle
I don’t use them either, and have nil to no turnover, we have folks leave some of our services, but come back soon when they figure out the grass is not greener with “ cheaper options” the other options just don’t seem to have the quality controls
 

BrendaS

Sampiere (Brenda) Family
Inner Circle
My contracts are purely for "show". I don't want an owner that isn't happy with me and vice versa. I would never hold an owner "hostage".

It would only be a problem if the owner decides to remove the availability of the property when you already have it rented but if your relationship is based on trust, they would know that is a huge issue and would hopefully give plenty of notice to refund or re-book the guest.
 

Steve Schwab

Attaché
Inner Circle
Mike has an amazing business and is very personal and well done. I think it works for him and can work for others but just like everything there is the advantages and disadvantages. This tactic works well for business models with very personal relationships in a boutique “limited edition” office.. When it comes time and if you ever have a dispute with that one HMO (High Maintenence Owner) there may be less structure to rely on if the owner is being unreasonable. If you know your market, know what kind of company you want to build you’ll know how employ the tools and structures that fit right and feel right for your organization.
 

Robin

Counselor
Inner Circle
It's an interesting approach and sounds legendary. Given that I take almost the opposite approach to this I feel surprisingly inadequate for choosing to rely on a lengthy solid, easy to read and generally uncompromising agreement to lay out how it works at Moving Mountains. If you are small and don't mind the risk and uncertainty of a handshake deal I think it can only serve to highlight the trust and respect that you have earned from your Homeowners.

Without my agreement owners would not take us seriously. I commend anyone who can make this business work without an agreement, but I would not recommend it to anyone. Your Rental Management Agreement (RMA) provides an opportunity to convey your value proposition by setting clear expectations and guidelines, and it reduces the risk of assumptions that can lead to difficult conversations. Don't be afraid to lay it out for your homeowner to understand every aspect of the relationship to come.
 

Jacobie

Counselor
Inner Circle
This is a cool story and there is certainly truth in the goodwill built from a "handshake". However, I would strongly advise his kids to slowly paper those relationships with their homeowners. At some point, the kids might not have the same passion for the business as their father, and the best way for them to get the highest price & terms for their business is to have tangible contracts.
 

AlexC

Envoy
Inner Circle
I read this and think “well that guy probably knows how to run a great PM business”….and that’s about as far as I get before I think “man, Vacasa is probably really really bad is at evaluating property management businesses for long term value”
 

Christina

Counselor
Inner Circle
Mike has an amazing business and is very personal and well done. I think it works for him and can work for others but just like everything there is the advantages and disadvantages. This tactic works well for business models with very personal relationships in a boutique “limited edition” office.. When it comes time and if you ever have a dispute with that one HMO (High Maintenence Owner) there may be less structure to rely on if the owner is being unreasonable. If you know your market, know what kind of company you want to build you’ll know how employ the tools and structures that fit right and feel right for your organization.
HMO - there's a great set of letters :ROFLMAO:

For a long time, @ChristianThoreson and I did only handshakes. When we got to about 18 properties, we decided that we needed a more clear understanding of our rights and obligations as well as the rights and obligations of the property owners. When it was only us doing bizdev, it was different than when we added someone doing it with us and spearheading the owner acquisition process (enter @BrookeP and Katie Bien Katie Bien). I think a clear written agreement outlining the relationship makes sense when shifting to a more business-type arrangement.
 

Craig

Envoy
Inner Circle
It's an interesting approach and sounds legendary. Given that I take almost the opposite approach to this I feel surprisingly inadequate for choosing to rely on a lengthy solid, easy to read and generally uncompromising agreement to lay out how it works at Moving Mountains. If you are small and don't mind the risk and uncertainty of a handshake deal I think it can only serve to highlight the trust and respect that you have earned from your Homeowners.

Without my agreement owners would not take us seriously. I commend anyone who can make this business work without an agreement, but I would not recommend it to anyone. Your Rental Management Agreement (RMA) provides an opportunity to convey your value proposition by setting clear expectations and guidelines, and it reduces the risk of assumptions that can lead to difficult conversations. Don't be afraid to lay it out for your homeowner to understand every aspect of the relationship to come.
My thoughts exactly. Also here in Australia we have to have a contract or we are operating illegally.
 

Laurie

Counselor
Inner Circle
When we started our business back around 2005, we operated on a handshake too.....we felt anytime an owner didn't feel they were getting their money's worth, they would be welcome to leave. Then, about 10 years ago, we decided that perhaps we should be a bit more professional. We got burned when an owner left and took his fully booked house to another property management firm and we had to argue and fight with the other company -- and eventually appeal to the morality of the owner -- in order to get the fees we believed we had earned. Especially since the owner -- and the new company -- wanted to retain these bookings. So we started requiring all our clients to sign contracts. It does help to clarify expectations and avoid any unpleasant conversations and we now clearly state in our contract that our marketing fees are earned at the time of booking rather than at the time of stay. I too felt that any potential buyer would probably feel more comfortable with contracts in place and as we slowly approach the place where we might consider selling, we have found that to be true!
 

Karla

Karla, Owner of Tropical Blessings
Inner Circle
I have been around the block with RMA’s since I bought my present over a decade ago. I bought into the RMA idea for the longest that since I run a business. That being said I of course I had to have an RMA, no two ways around it.

Despite assorted RMA’s I got seriously burnt more than once despite them. My first really bad experience was with Big Bully Agency who manages about 40 properties. After them came wonderful couple (complete with nice and reasonable RMA which I gladly signed) who managed only four other island properties at the time They did a great job until they went onto “bigger and better” but we’ll be friends for life and they recently referred terrific guests to me who will definitely return, a great bond was established.

Ironically, no RMA with those great PM’s would have made any difference, everything simply worked and worked very well. Other RMA’s followed with other people, all written by me or them. However, I ran into corruption, dishonesty and theft anyhow. A charming British couple (vetted) actually stole my identify in the aftermath of two back to back cat 5 Hurricanes Irma and Maria that struck the VI in September 2017. I couldn’t get to St. John until January 2018 at which time I promptly fired them, filed a police report and contacted a great attorney who assured me the dude would eventually end up in Leavenworth though the IRS will never tell me when. Although Leavenworth lacks a great view but at least they have a great meal plan. A free vacation for a fellow who really deserves one.

What a helluva predicament I found myself in. There I was in a Caribbean paradise that measures only 20 square miles and the island looked like it had been hit by a bomb. Uh oh, I needed a PM, good luck to me! Months and months went by but somehow I managed to interview 8-9 candidates. However, something inside me kept saying “”Nope, nope, nope” to all to all of them and my situation was looking quite dire until Myrna came along.

Call it serendipity or whatever similar word you might choose but I knew I had suddenly hit it. Myrna presented me with her own RMA but it was way too short and I knew her monthly “detailed reports” were never going to happen. I came back with my own very long RMA. Is X a “break and fix” issue that’s included or should I pay for it? Etc.,etc. If anyone needs a sleep aid I’ll dig out that document.

Suffice it to say, Myrna and I both dumped our respective RMA’s and have been rocking on ever since. I’ve learned and grown by leaps and bounds and feel better about my business than ever before. I make my own rules, call my own terms, creativity blossoms, independence flourishes and guests are happy. Many return and you can’t do much better that.

Myrna is local (pretty unusual) and her qualifications are superlative, no surprise to me: Myrna now holds a senior position with the USVI government. Could I ever have done better with a PM? Absolutely not, and I’m grateful!

Myrna and I both work our butts off. We’re “friends” but we’re also very professional. All works to good purpose on both ends. So what happened with Myrna and I? Me as a small player, the single owner of a single property, is definitely a factor but the key elements of my successful PM arrangement with Myrna amount to two words only: instinct and trust.

Happy Holidays to all, great words since a great vacation is a great holiday!
 
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Karla

Karla, Owner of Tropical Blessings
Inner Circle
I’ll add to my comments about contracts: Although I do not want/need a contract between myself and my Property Manager I absolutely do want/need a Rental Agreement with guests. My rules/policies were far to loose for a very long time but I straightened that out in the nick of time by requiring proof of identity. That saved me once in a major way on VRBO when I got an instant booking from an unscrupulous character. My private sleuthing revealed some information that was alarming but my agreement allowed me to cancel him without penalty. I now see a few tweaks to make to that agreement but overall I’m highly pleased with it, it’s very specific and detailed. My “tech stack” is at the top of my New Year’s agenda. A lot is going very well but streamlining and reducing my workload is entirely possible and strongly desired.
 

Bruce

Envoy
Inner Circle
I do require a contract, but my terms are basically for 90 days - either party can leave the agreement with notice in 90 days. It is slightly more rigorous than no contract in that it spells out specifics about who pays what, but no one is locked into anything long-term. If/when I think about selling I may need to revisit that 90-day clause, but for the time being I think it gives me the best of both worlds.
 

Katie Bien

Attaché
Inner Circle
We require a contract, but like many here, we do have an "out" for either party. While the relationship with owners is very much a partnership, we don't want to force an owner to stay that doesn't want us or vice versa, as our relationships are built on trust and mutual respect. What we have found, is that the contract is helpful most when navigating that exit in the rare cases when the partnership is ending. We've also have found that the contract can help manage expectations upfront and offer an abundance of clarification.
 
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