If You Think You Understand Professionals, Then This Might Change Your Mind

Managing Risks in Real Estate

By far the highest number of commission penalties, consumer complaints, and license suspensions and revocations in most states, are connected to property management. It’s not that property managers are ineffective. It’s just that property management is a very transaction-intensive business. Though your typical agent might do a dozen sale transactions yearly with a purchase agreement and related documents, the typical property manager can do hundreds of smaller transactions.

The fact that they’re smaller doesn’t indicate that those transactions are less important, and it doesn’t diminish the risk they involve. Being a property manager, you’re dealing with an owner to market and rent their property, handle rent collection and remit the money to them, as well as to manage the property in all aspects, from maintenance to enforcement of tenant rules.

This means you’re transacting with owners and tenants, advertising agencies, repair guys, contractors, etc. Each of these transactions brings some risk into your business, especially financial.
Risk management is, of course, extremely important. The economic survival of a property can be threatened by a huge disaster. The records kept play a huge part, as any legal action taken by others can be easily disputed if there are detailed records that oppose their claims.
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A large component of risk management is determining risk opposite reward. Let’s say a property has a swimming pool on it. The property manager and owner should balance the pool’s value with its risks. When a risk has been identified, it can addressed in three ways:
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The pool will be removed as the extra rental income it brings is far less than the insurance cost or the risks involved.


If the pool is retained, a coded lock and fence will be installed to keep small children out.

Risk Transfer

The most usual manner of dealing with risk is to buy insurance to transfer the risk to the insuring company. A good property manager plans for problems, keeps records of each activity, and keeps assessing these functions in order to determine if change is needed.

Documents and Email

In several states, you only have to keep transaction records for six years. It is best to keep them for much longer though, especially if you may do so digitally or electronically. You can be sure that if any of the parties have a claim, a person who wants to sue you for an incident six years and ten days ago, can still have their document copies. If you’ve already destroyed your own copies, it would be much harder to plead your case. Finally, when it comes to email, any court action that involves a federally guaranteed loan (almost all of our residential deals), can force you to produce emails connected to the transaction and communications with the client.