Property Management for Landlords
Property management is a specialty in which real estate brokers
manage homes and duplexes as well as large projects such as office
and industrial complexes, shopping centers, apartment houses, and
condominiums.
Reasonable knowledge and understanding of the general principles and
responsibilities relating to this field is appropriate for all
brokers and salespersons.
Knowledge of agency, contracts, fair housing, rentals and leases
satisfies a considerable portion of property management
requirements. Additional knowledge is required in business
administration, marketing, purchasing, extensions of credit,
accounting, advertising, insurance, repairs and maintenance,
taxation and public relations.
PROFESSIONAL ORGANIZATION
Property management firm is required to adhere to the following
guidelines:
1. Maintain separate bank accounts for its own funds and for the
funds of its clients, with no commingling;
2. Carry a satisfactory fidelity bond on all of its employees whose
duties involved the handling of funds; and,
3. Refrain from taking discounts or commissions from purchases,
contracts, or other expenditures of clients funds without full
disclosure to, and permission from, the property owner.
PROPERTY MANAGERS AND PROFESSIONAL DESIGNATIONS
There are three types of property managers: the individual property
manager, the individual building manager, and the resident manager.
The individual property manager is usually a real estate broker who
manages properties for various owners or an owner. The property
manager may be a member of a small property management firm and
devote full time to property management; or, he may own his own
firm; or, he may be one of a number of property management
specialists in a large real estate organization. Some property
managers are asset managers and make the same types of decisions
that an owner would relative to change of use, refinancing and sale.
Asset managers frequently supervise other CPMs (certified property
manager).
 The
individual building manager may be employed by a property manager or
directly by an owner, and usually manages a single large property.
The resident manager may be employed by a real estate broker or a
managing agent or
an owner to manage an apartment building on a part or full-time
basis. The training, experience and number of units managed
determine the individual property or building managers qualification
for the CPM designation. To qualify for
the ARM designation, size of the property as well as training and
experience are again criteria.
FUNCTIONS OF A PROPERTY MANAGER
The many and varied duties of a property manager require the skills
of a business executive, decorator, salesperson, parking lot
attendant, gardener, housekeeper, information center, accountant,
banker, doctor, lawyer, social director, psychologist, marriage
counselor, baby sitter, bookkeeper, rent collector, maintenance
expert, security
officer, keeper of the keys, telephone operator, messenger service,
and complaint department. The manager must also be soft-spoken,
fast-moving, poised, quick-thinking, non-tiring, ever-available,
mechanical-minded, all-knowing and never-ailing. This expert knows
how to visit without visiting, sell without selling, see without
judging,
hear without repeating - and all without having time for an
uninterrupted meal. The property manager has a dual responsibility:
to the owner or client who is interested in the highest return from
the property; and to the tenants, who are interested in the best
value for their money, including reasonable safety measures and
compliance with fair
housing laws. The property manager must promptly rent the
property/units at the highest market rent
possible, keep operational and other costs within budget, and
preserve and enhance the physical value and prestige of the
property.
SPECIFIC DUTIES OF THE PROPERTY MANAGER
Here are some of the specific duties a property manager must
perform:
1. Establish the rental schedule that will bring the highest yield
consistent with good economics.
2. Merchandise the space and collect the rent.
3. Create and supervise maintenance schedules and repairs.
4. If applicable, insure independent contractor status.
5. Set up payroll system for all employees.
6. Develop a tenant/resident relations policy.
7. Supervise employees and develop employee policies, including an
Injury Prevention Plan.
8. Maintain proper records and make regular reports to the owner.
9. Qualify and investigate a prospective tenants credit.
10. Prepare and execute leases.
11. Obtain decorating specifications and secure estimates.
12. Hire, instruct, and maintain satisfactory personnel to staff the
building(s).
13. Audit and pay bills.
14. Advertise and publicize vacancies through selected media and
broker lists.
15. Recommend alterations and modernization as the market dictates.
16. Inspect vacant space frequently.
17. Keep abreast of the times and competitive market conditions.
18. Obtain and pay insurance premiums and taxes.
19. Be knowledgeable about and comply with applicable Federal, State
and local laws.
RENT SCHEDULE
In establishing the rental schedule, the property manager must make
a thorough
neighbourhood analysis by doing a market survey of rents for
comparable buildings.
Rent
levels, generally, are established on the basis of scarcity and
comparability of values.
The manager must know the building thoroughly, assess its values
objectively, then
survey all of the competition buildings in whatever limits the
manager sets for the
neighbourhood. The manager must then analyze:
1. The character of the buildings and amenities of the
neighbourhood.
2. Economic level, family size, and age groups.
3. Trends in number of occupants per unit.
4. Availability of transportation, recreation, shopping, churches,
and schools.
5. Physical aspects as well as lot coverage.
6. The breadth and growth of local industries.
7. Population growth trends.
8. Personal income range, financial capacity, and stability of
income.
9. Growth and expansion of the community.
10. Condition of the housing market in terms of inventory on the
market, sales price range, new construction, and vacancy.
After a thorough analysis, the property manager will prepare a rent
schedule that will
bring the maximum income obtainable, consistent with good economics.
MERCHANDISING THE SPACE
 All
of the activities relating to property management are useless unless
the property manager knows how to effectively merchandise the space
available for rent. Various methods of merchandising include:
business cards, newspaper ads, signs on the property, radio and
television advertising, brochures and fliers, billboard advertising,
business contacts, and tenant referrals. When a prospective
qualified tenant responds to advertising, the property manager must
make every effort to secure the tenant for the vacant property, as
advertising can be very
expensive. A sound property maintenance program is very important.
Rental properties showing the wear and tear of the previous
occupants will discourage a prospective tenant.
MAINTENANCE AND PURCHASING OPERATIONS
The property manager must establish and maintain sound policies for
the maintenance of the building and purchasing of supplies and
services. However, if all of the buildings income is used for
expenditures, leaving the owner no profit, the dissatisfied owner
will seek the services of another property manager.
It is the responsibility of the property manager to routinely
inspect the building and know its current, as well as deferred
maintenance needs. The property manager should have access to
skilled specialists for repair and maintenance work, unless the
resident manager is personally skilled to perform necessary repairs.
In either case, the property
manager must correct the buildings repair/maintenance problems as
soon as they are discovered. It is less expensive to make repairs
immediately than to delay action and allow the problem to worsen.
Ongoing preventive maintenance to reduce the need for large
maintenance expenditures should be the goal of all property
managers. This
approach makes good sense and, ultimately, provides more profit for
the owner. The property manager must also supervise all purchasing
operations, with the emphasis on obtaining the best value possible
for the owners money.
TENANT RELATIONSHIPS
Tenants want to get the most they can for their rental dollar and
feel safe in their surroundings. The property manager must set
policies which will give tenants the most benefits commensurate with
a proper return to the owner. Effort expended for tenant retention
will result in more satisfied residents and increased profits for
the owner. Here,
the manager has to use experience and courtesy as well as
psychology.
MANAGER AS EMPLOYER
The property manager employs almost all the people working on the
premises and provides for their instruction and supervision. The
manager must know the what, how and when of each employees job.
The success or failure of the management operation often depends on
the property managers ability to choose, train, direct and retain
personnel. An effective staff will keep vacancies and maintenance
costs at a minimum, thus contributing to the projects profitability.
VACANCIES
There are many reasons why a rental space might be unintentionally
vacant: improper rent required; space not ready to rent; resident
manager not selling effectively; an inattentive manager; poor
resident retention program; unappealing facade or public areas; no
traffic or lookers; and high vacancy factor in area. Successful
managers are continually alert to these factors and make appropriate
adjustments in marketing strategies and personnel where indicated.
REPORTS TO OWNER
The property manager must set up and maintain proper records, making
regular reports to the owner that are easily understandable and that
cover all operations. It is also recommended that the property
manager provide not only a monthly accounting to the property owner,
but also a detailed annual statement. By means of such annual
statements, the property manager can assess the fluctuations of
income and expense and formulate future rental, maintenance and
employee policies.
EARNINGS
Management fees can be either a flat amount per month, a percentage
of the gross rents collected, or a combination of the two. Property
managers usually base their fees on a percentage of the gross rents
collected. This may vary from 3 percent on large structures to as
high as 20 percent on individual houses or small buildings. In some
resort areas
with high turnover rates and short terms of occupancy, as much as 50
percent of the gross rent is charged as a fee for renting a
property. In addition to the fees collected on rentals, the property
manager frequently receives additional compensation for the renewal
of leases and for supervising major repairs or alterations.
Salaries for supervisors in a management company, resident managers,
and office building managers depend largely upon local conditions
and vary with geographical areas of the country, size of the city,
and the size of the building. Additionally, care must be taken to
comply with the minimum wage law.
Management Contract
It is good business practice for a property manager to have a
written contract with the property owner which clearly sets forth
the responsibilities of both parties. This should include the terms
and period of the contract, the policies pertaining to the
management of the premises, management fees, and the authority and
powers that are given by the
owner to the agent. Standard management agreement forms are
available covering the management of rental properties. Building
managers should have a special agency contract drawn up by a
qualified legal adviser.
As an agent, the property manager is subject to all of the legal
restrictions generally imposed upon an agent, as well as those
specifically included in the contract. Such obligations include good
faith and loyalty to the principal, performance of all duties with
skill, care and due diligence, full disclosure of all pertinent
facts, avoidance of
commingling of funds, and refraining from personal profits without
the principals full knowledge and consent. The agent must be
familiar with the laws concerning real estate licensing, contracts,
agency, fair housing, employment, property protection, and
tenant/landlord relationships.
The preparation of leases, tax reports and other matters may involve
legal and accounting services beyond the province of the property
manager. In such cases, professional counsel should be obtained. On
the other hand, it is the property manager who normally engages
maintenance workers, contractors, subcontractors, and others.
The property manager must get the full name, address, and proper tax
identification numbers from all such individuals. When and if their
annual compensation meets or exceeds the taxable amount, the proper
IRS 1099 form must be sent to these individuals and to the
appropriate governmental agencies.
ACCOUNTING RECORDS FOR PROPERTY MANAGEMENT
A property manager must have knowledge of accounting procedures and
cost accounting. The broker will need to maintain complex trust
account records and make regular reports to the owner.
The maintenance of an adequate trust fund accounting system is
necessary due to the fiduciary relationship between the real estate
broker and the property owner. An accurate record must be kept of
all trust funds passing through the brokers hands. The property
manager must comply with the laws and regulations concerning trust
accounts
and records. Volume of business will determine the number of
bookkeeping records needed. The
small office requires simple records. The larger operation with
office assistants and added sales personnel will almost certainly
require more elaborate record keeping methods. The responsibility
for trust fund records is placed on the property management broker.
An outside accountant should be retained periodically for review of
the accounting system. Firms doing a large volume of business and
having a sales force may wish to consider the possibility of bonding
the unlicensed office assistants so that they can legally handle
clients funds. Corporations and many limited partnerships may impose
this bonding requirement and require individual bonding rather than
a blanket bond. The
accountant may be able to consider various aspects of the accounting
system and to devise methods to assist the broker in keeping control
of the trust funds.
SAMPLE OF THE CONTRACT FOR MANAGEMENT OF SINGLE FAMILY HOUSE
This agreement dated __________, is made By and Between __________,
whose
address is __________, ("Owner"), AND __________, whose address is
__________, ("Agent.")
1. Agency. The Owner hereby employs the Agent to lease
and manage the Owner's single family residence ("Property") located
and described as follows:(Address or Legal Description)
2. Duties of Agent. In order to properly manage and
lease the property, the Agent shall have the following duties and
responsibilities:
A. Best Efforts. The Agent shall use its best efforts to
attract and retain tenants for the property.
B. Lease Negotiations. The Agent shall handle all
negotiations with tenants with respect to leases. All such
agreements are subject to the approval of the Owner. However,
the Owner may provide the Agent with authorization to lease under
certain specified terms and conditions.
C. Employees. The Agent shall employ, supervise,
discharge, and pay all employees or independent contractors who are
reasonably required in the proper management and operation of the
property. The Agent shall pay all
employees and independent contractors and fully complete all
necessary federal tax returns and payments of related taxes on
behalf of the Owner.
D. Supplies. The Agent shall purchase all necessary
supplies for the proper management of the property. This
includes heating fuel where applicable.
E. Repairs and Maintenance. The Agent shall contract for
or undertake the making of all necessary repairs and the performance
of all other necessary work for the benefit of the property
including all required
alterations to properly carry out this contract. However, no
expenses shall be incurred for such matters in excess of Fifty
Dollars ($50.00) for any single item without the express consent of
the Owner, except where required during an emergency.
F. Mortgages and Other Expenses. From the rents received
the Agent shall pay all operating expenses and such other expenses
as requested by the Owner. This may include the payment of
mortgages or taxes.
G. Miscellaneous. The Agent shall also perform all other
necessary tasks and do all other things as required for the proper
management, upkeep and operation of the property as customarily be
performed by a
Managing Agent of this type of property. This includes
handling of all inquiries and requests from the tenants.
H. Collection of Rents. The Agent shall collect the
rents and other income from the property promptly when such amounts
come due taking all necessary steps to collect same and performing
all reasonable acts on
behalf of the Owner for the protection of the Owner in collection of
such amounts.
I. Financial Records. All monies collected by the Agent
shall be deposited into a special bank account or accounts as
required by the Owner. Such monies of the Owner shall not
become mingled with funds of
the Agent. However, the Agent may withdraw monies from such
accounts as necessary to properly perform this contract and in
payment of compensation as required by this contract. The
Agent shall provide the
Owner with periodic statements accounting for all expenses and will
open its records to the Owner upon demand.
J. Payments to Owner. The Agent will make payments to
the Owner from time to time from the funds being held by the Agent.
3. Compensation of Agent. The Owner shall pay the Agent
as full compensation for the services of the Agent the sum of
__________ Dollars ($______) per month. These amounts shall be
payable to the Agent when
such funds become available from the amounts collected by the Agent
according to this contract.
4. Duties of the Owner. The Owner will provide all
necessary documents and records and fully cooperate with the Agent
in all matters with respect to this contract. The Owner will
provide the Agent with evidence
of insurance which evidence the Agent shall examine to determine the
adequacy of coverage. If necessary, additional insurance of
changes in insurance coverage may be made upon the approval of the
Owner.
5. Indemnity. The Owner shall indemnify and hold the
Agent completely harmless with respect to liability and damages,
costs and expenses in connection with any damage or injury
whatsoever to persons or property arising out of the use,
management, operation, occupation, ownership, maintenance or control
of the property or out of any matter or thing with
respect to which it is elsewhere in this contract provided or agreed
that the Agent shall not be under responsibility. However, the
Owner will not indemnify the Agent against the will-full misconduct
of the Agent.
6. Term of Contract. This contract shall continue for a
period of one year from the date hereof, and shall be automatically
renewed from year to year unless terminated by either party upon
written notice sent to the other party not less than fifteen (15)
days before any expiration date.
7. Termination of Contract. This contract may be
terminated at any time by the Owner upon giving the Agent thirty
(30) days written notice in the event of a bona fide sale of the
property, and without notice in the event the Agent fails to
discharge the duties of the Agent faithfully in the manner herein
provided.
8. Notices. All written notices to the Owner or to the
Agent may be addressed and mailed, by registered mail, to the
address above written.
9. Modification. This contract may not be modified,
altered, or amended in any manner except by an agreement in writing
executed by the parties hereto.
10. Who is Bound. This contract is binding upon the
parties hereto, their representatives and successors.
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What Should You Expect from Your Management Company?
Agent vs. Contractor
Expect your Managing Agent to be aware of their fiduciary
responsibility to the Association and to do what is in the best interest
of the Association.
One of the first things to recognize is that the Managing Agent for
your Association is most typically not a Contractor. There are distinct
legal differences between Agents and Contractors which impact the
relationship and the expectations between the Board and its management
firm. Unlike a Contractor, an Agent has a fiduciary responsibility to do
that which is in the best interest of the Association. It is the same
fiduciary responsibility that the Board of Directors has and is very
unlike Contractors who have no obligation to act on behalf of anyone
other than themselves. A fiduciary obligation represents the highest
level of responsibility under the law. The Agent and the Board will be
held to the sam e standard that applies to a guardian or person who has
custodial care of someone else, or someone else's money.
Professional Advisor
Expect your Managing Agent to professionally advise your Board on
issues within their scope of knowledge and alerting the Board when
consulting other professionals is prudent.
Your Managing Agent should be knowledgeable about your governing
documents as well as local and federal laws affecting common interest
communities. However, managers are not lawyers, tax accountants,
insurance agents, investment advisors or engineers. The Agent's role is
to advise the Board on issues within their scope of knowledge and then,
based on experience, to advise the Board when guidance from other
professionals is prudent. The Managing Agent should be thought of by the
Board as the Association's first line of defense in risk management.
Soliciting the advice of professionals retained for that purpose can
minimize the Association's risk exposure. Your professional team will
include your m anaging agent, legal counsel, auditor, insurance agent,
investment advisor, contractors and other specialists called upon from
time to time for specific circumstances and needs.
Professionalism
Expect that your Managing Agent and the Board will conduct business
in a professional manner.
You should expect that the manager and your management firm will be
professionally credentialed. Look for accreditations and affiliations
with industry related organizations as an indication of the Managing
Agent's commitment to their industry. Expect professional demeanor,
appearance and attitude from the management staff. Expect management
representatives to be mature, calm and thoughtful when interacting with
the Board and homeowners and in their approach to problem solving.
The Board should bring the same level of professionalism to the
governing process. Be respectful of the manager's time by being prepared
for meetings and arrive on time. Keep meetings moving and on track by
sticking to the agenda. Ask questions prior to the meeting to allow the
Manager time to research an answer. Be respectful when dealing with
management staff and homeowners. Set a positive tone for the conduct of
business. Encourage the positive exchange of ideas and diversity of
opinion. Work to build consensus. Agree to disagree and attack issues,
not the people who brought them forward. Exercise common courtesies. A
little diplomacy goes a long way and the Board relationship with
management often sets the tone for the rest of the community.
Leadership
Expect your Managing Agent to work with you to develop an annual work
plan that provides clear direction to the management team and
demonstrates strong leadership to the community.
The Board of Directors and the Managing Agent represent the
leadership of the community. See the big picture and lead with a
strategic plan! Planning sessions that produce an annual work plan
should take place every year. The Board defines the objectives given the
budget and resource limitations of the community while the management
team develops an implementation plan and completion schedule. This
process builds a consensus among Board members about community
priorities and helps the management team focus resources and staff time
on the issues of greatest importance to the Board.
The annual work plan provides a measure of performance and sense of
accomplishment for the management team and the Board of Directors.
Unpredictable events interrupt the best conceived plans so re-evaluate
and adjust your plan periodically. Evaluating the successes and failures
of the annual plan helps everyone to plan better in the future.
Leadership is also about setting an example for others. The Board and
the management staff will be held to a very high standard by the
community. Understand that your actions and demeanor will be seen by the
membership and will reflect on the community.
Communications
Expect your Managing Agent to establish and promote effective
communications with the Board and between community leaders and the
membership.
Establish and maintain good methods of communication between the
Board and the Managing Agent! Promote it, encourage it, expect it.
Schedule periodic work sessions with the management team to revisit the
annual plan and update each other on the status of work. Typically,
there is no time at monthly Board meetings to “catch up” with each other
and simply discuss the wide variety of day to day issues facing the
management staff, the Board and its committees. An informal work session
can go a long way towards re-focusing the group and strengthening
understanding of the challenges facing each team member. This also works
well between the Board and the membership. Periodic “Town Meetings” help
to keep the Board and management in touch with homeowners and provide an
opportunity for feedback from the membership.
Resources
Expect your Managing Agent to be a valuable resource for quality
goods and services.
The needs of Associations are extraordinarily diverse. You may need
assistance with finding good contractors, volunteer education &
training, engineering services, interior design, planning, meeting
facilitation, desk top publishing, minute taking, loan financing, human
resources, bids for services, drafting specifications, insurance
coverage, insurance claims, litigation, etc. Although the management
company may not directly provide many of these services, you should look
to your management company for contacts, options and resources to obtain
whatever services and goods the Association needs.
Trust and Confidence
Expect your Board members and your Managing Agent to protect
privileged Association information and executive session
confidentiality.
In order to be a productive and mutually rewarding relationship, the
relationship between the Board and their Managing Agent must be one of
trust and confidence.
Flexibility
Expect your Managing Agent to be flexible and willing to revisit
service levels as Board or community needs dictate.
To minimize misunderstandings, be honest with the Managing Agent
about your Association's needs and articulate what you expect the
management company to do.
Management companies base their bids on the scope of work provided by
the Board. The clearer and more comprehensive the scope of work is, the
more likely it is that the service you receive will be tailored to your
actual need.
Remember, management is not a cookie cutter product. One size does
not fit all! Different communities have vastly different needs that
change over time. Every time Board members change, expectations and
group dynamics are altered. The entire direction of the community can be
changed with one Board election. Be prepared to re-visit the management
agreement and realign service levels as needed.
Quality Customer Service
Expect your Managing Agent to establish and maintain a high quality
customer service program for your community.
Knowledgeable competent staff members who are approachable and
responsive are the foundation for quality customer service. We have
learned over time that client satisfaction is most often measured, not
by how many tasks were achieved, but by what level of customer service
was provided to homeowners by the management team. Your Managing Agent
should demonstrate a commitment to customer service and an understanding
of its importance in the management of common interest communities.
<© Association Times - Permission to reprint any of the information
contained in this article is granted provided Association Times
is credited as the source.
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