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Real Estate Risk Management

In most states, by far the greatest number of consumer complaints, commission penalties and license suspensions and revocations are have something to do with property management. It’s not that those property managers are being incompetent. 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.

Just because they’re smaller doesn’t give these transactions less importance, and it doesn’t decrease the risk entailed 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. 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 considerable part of risk management is determining risk versus reward. Take, for example, a property with a swimming pool on it. The property manager and owner must balance the value of the pool and the risks it brings. After a risk is identified, it should be addressed in one of three ways:
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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

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

Risk Transfer

The most common way of dealing with risk is to get insurance and transfer the risk to the insurance company. The successful property manager will anticipate and plan for problems, keep records of each activity, and consistently assess these functions to know if change is in order.

Documents and Email

In a lot of states, six years is the mandatory period for keeping transaction records. However, it is best to keep them for longer, especially if you can do it in electronic format. For sure, if any of the parties has a claim and someone wants to sue you for something that occurred earlier than six years ago, they will still be holding 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.