Modern Real Estate Practice in Pennsylvania 12th Edition

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

2. 23 Property 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

3. 23 Property 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

4. 23 Property 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

5. 23 Property Management • Management agreement • Agency relationship between owner and property manager • Property manager usually a general agent • Accounting • Care • Obedience • Loyalty • Disclosure

6. 23 Property 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

7. 23 Property Management • Elements of a management agreement • Reporting requirements • Compensation • Allocation of costs • Antitrust provisions • Equal opportunity statement

8. 23 Property 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

9. 23 Property Management • Manager’s responsibilities • Financial reports • Renting the property • Marketing • Selecting tenants • Collecting rents • Maintaining good tenant relations

10. 23 Property Management • Financial reports • Operating budget • Cash flow report • Income • Expenses • Profit and loss statement • Budget comparison statement

11. 23 Property 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)

12. 23 Property 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

13. 23 Property 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)

14. 23 Property 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

15. 23 Property 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

16. 23 Property 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

17. 23 Property 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

18. 23 Property Management • Preservation of property • Preventive maintenance • Corrective maintenance • Routine maintenance • Tenant improvements • Renovate and modernize when appropriate

19. 23 Property Management • Federal laws affecting property management • Equal Credit Opportunity Act (ECOA) • Fair Housing Act • Americans with Disabilities Act (ADA)

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

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

22. 23 Property 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

23. 23 Property 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

24. 23 Property 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

25. 23 Property Management • Risk management • Risk management techniques • Tenant security

26. 23 Property Management “What will happen if something goes wrong?” • Control it — install sprinklers, fire doors, etc. • Avoid it — remove source (swimming pool) • Retain it — but insure with large deductible • Transfer it — take out insurance policy

27. 23 Property 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

28. 23 Property Management • Insurance audit: make recommendations to property owner • Multiperil policies: • Fire • Hazard • Liability • Casualty • Natural events

29. 23 Property Management • Licensee may not personally profit from expenditures on behalf of principal: • Kickbacks • Rebates • Undisclosed fees • Key money