Real Estate Risk Management

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 the business of property management is very transaction-intensive. 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 make such transactions less important, and it doesn’t lower the risk involved in doing them. 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.

Doing this means you’re transacting with owners and tenants, repair companies, advertising agencies, contractors and the rest. Each of these transactions brings some risk into your business, especially financial.
Risk management is, of course, extremely important. A sizable disaster can economically threaten the property’s survival. Record-keeping plays a significant part, with any legal action taken by others being easily disputed by existing detailed records that contest their claims.
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A substantial part of risk management is the determination of risk against reward. Let’s say a property has a swimming pool on it. The property manager and owner must maintain a balance between the pool’s value and its risks. When a risk is identified, there are three ways to address them:
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Avoidance

The pool will be removed as the extra rental income it brings is far less than the insurance cost or the risks involved.

Control

The pool is retained but a coded lock and fence will be installed to keep the area off limits to small kids.

Risk Transfer

The most common way of dealing with risk is to get insurance and transfer the risk to the insurance company. A good property manager will plan for issues, keep files and records of all activities, and constantly assesses these functions to find out if change is needed.

Documents and Email

In different states, you only need to maintain transaction records for half a year. But it is advisable to keep them far longer, especially if you can do so in digital format. 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. It’s a lot harder to plead your case without your own copies. 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.