Modern Real Estate Practice in Pennsylvania 12th Edition Chapter 23: Property Management

2 ©2012 Kaplan, Inc. 23Property Management Learning objectives –Identify the basic elements of a management agreement –Describe a property manager’s functions –Explain the role of environmental regulations and the Americans with Disabilities Act in the property manager’s job –Distinguish the various ways of managing risk –Define key terms

23Property Management Role of a property manager (PM) –Involves leasing, management, marketing, and maintenance of other’s property –Responsibilities Achieve the goals of the owner Generate income for the owner Preserve and/or increase the value of the investment property 3 ©2012 Kaplan, Inc.

23Property Management In Pennsylvania –PM who serves public for fee must be broker –Can be affiliated with PM firm or brokerage –May be employee of owner –Licensees have agency relationship with owner –PM or owner can employ building manager –Employees of owners do not always require license 4 ©2012 Kaplan, Inc.

23Property Management Management agreement –Agency relationship between owner and property manager –Property manager usually a general agent Accounting Care Obedience Loyalty Disclosure 5 ©2012 Kaplan, Inc.

23Property Management Elements of a management agreement –Description of the property –Time period –Definition of the manager’s responsibilities –Statement of the owner’s purpose –Extent of the manager’s authority 6 ©2012 Kaplan, Inc.

23Property Management Elements of a management agreement –Reporting requirements –Compensation –Allocation of costs –Antitrust provisions –Equal opportunity statement 7 ©2012 Kaplan, Inc.

23Property Management Math concept –Commissions usually based on annualized rent –Example: Rent: $1,200/month Commission: 8 percent $1,200 × 12 = $14,400 $14,400 × 8% = $1,152 8 ©2012 Kaplan, Inc.

23Property Management Manager’s responsibilities –Financial reports –Renting the property –Marketing –Selecting tenants –Collecting rents –Maintaining good tenant relations 9 ©2012 Kaplan, Inc.

23Property Management Financial reports –Operating budget –Cash flow report Income Expenses –Profit and loss statement –Budget comparison statement 10 ©2012 Kaplan, Inc.

23Property Management Setting rental rates –Influenced by supply and demand Income must cover charges and expenses Must provide return on investment Must be in line with comparable rates Vacancy rate is indicator of ability to raise rent –Residential space: monthly amount/unit –Commercial space: per square foot (annual) 11 ©2012 Kaplan, Inc.

23Property Management Renting the property –Marketing Find best tenants Consider the property Supply and demand in the area Amount of money for advertising –Advertising Comply with state and federal laws Cannot market to one protected class Utilize various advertising methods 12 ©2012 Kaplan, Inc.

23Property Management Selecting tenants –Satisfied tenants stay longer and will pay more rent –Financial qualification Commercial – “fits the space” –Business interests of tenants is important –Services should be complementary (not competitive) Comply with fair housing laws (and PA HRC) ©2012 Kaplan, Inc. 13

23Property Management Vacancy rate –High level of vacancy: Rents too high Or, poor management Or, defective or undesirable property –High occupancy: May mean rates are too low 95% above, examine opportunities ©2012 Kaplan, Inc. 14

23Property Management Collecting rents –Minimize problems with careful selection Investigate financial references Question former landlord –Spell out payment provisions in detail Time and place of payment Penalties for late payment Provisions for cancellations and damages If delinquent, try to collect outside of court Follow through with legal action when required ©2012 Kaplan, Inc. 15

23Property Management Maintaining good tenant relations –High turnover causes greater expenses –Communicate through postings and memos –Good service benefits tenants and owners –Tenants must adhere to regulations, or other tenants get frustrated Contact good tenants before renewal dates to maintain relationships 16 ©2012 Kaplan, Inc.

23Property Management Maintaining the property –Supervision of maintenance: Balance provided services with costs Satisfy tenants’ needs while minimizing operating expenses –Contract for maintenance, or hire on-site Well-maintained, high-service property can command premium rentals ©2012 Kaplan, Inc. 17

23Property Management Preservation of property –Preventive maintenance –Corrective maintenance –Routine maintenance –Tenant improvements Renovate and modernize when appropriate 18 ©2012 Kaplan, Inc.

23Property Management Federal laws affecting property management –Equal Credit Opportunity Act (ECOA) –Fair Housing Act –Americans with Disabilities Act (ADA) 19 ©2012 Kaplan, Inc.

23Property Management Americans with Disabilities Act (ADA) –Title I: Employment 15+ employees Adopt nondiscriminatory employment procedures –Title III: Accessibility Commercial properties Public accommodations 20 ©2012 Kaplan, Inc.

23Property Management 21 ©2012 Kaplan, Inc. Provide doors with automatic opening mechanisms Install an intercom so customers can contact a second-floor business in a building without an elevator Add grab bars to public restroom stalls Provide a shopper’s assistant to help disabled customers Provide menus (and real estate listings) in a large-print or Braille format Lower public telephones Permit guide dogs to accompany customers Provide ramps in addition to entry stairs

23Property Management Equal Credit Opportunity Act –Prohibits lenders from denying loans based on the following: Race, color, religion, national origin, sex Receipt of public assistance Age, marital status –Use the same application for everyone –Use same procedures for everyone 22 ©2012 Kaplan, Inc.

23Property Management Fair Housing Act –Prohibits discrimination in the rental of property Race, color, religion, national origin, sex Familial status and disability –No steering –No differences for families with children –Allow tenant with disability to make reasonable accommodations 23 ©2012 Kaplan, Inc.

23Property Management Security of tenants –Several court decisions held landlords responsible for harm inflicted by intruders –Prevent unauthorized entry into facilities –Secure units from intruders –Install videotaping equipment 24 ©2012 Kaplan, Inc.

23Property Management Risk management –Risk management techniques –Tenant security 25 ©2012 Kaplan, Inc.

23Property Management “What will happen if something goes wrong?” C ontrol it — install sprinklers, fire doors, etc. A void it — remove source (swimming pool) R etain it — but insure with large deductible T ransfer it — take out insurance policy ©2012 Kaplan, Inc. 26

23Property Management Can insure only what is owned –Tenant insurance ― personal property, liability –Landlord insurance ― insures the real property –Condominium insurance ― association covers building; individual owners provide for their units –Errors and omissions (E&O) insurance ― professional insurance 27 ©2012 Kaplan, Inc.

23Property Management Insurance audit: make recommendations to property owner Multiperil policies: –Fire –Hazard –Liability –Casualty –Natural events 28 ©2012 Kaplan, Inc.

23Property Management Licensee may not personally profit from expenditures on behalf of principal: –Kickbacks –Rebates –Undisclosed fees –Key money 29 ©2012 Kaplan, Inc.