Property management is one of many specialized fields within the area of real estate; and though a special license may not be required to engage in property management, those who would become involved in such endeavors are well-advised to prepare themselves by means of courses and training.
It is not unusual for those who specialize in property management to refer out listing and sales business, even though their real estate license would allow them to engage in it. Similarly, some who are excellent at listings and sales recognize that property management may not fall within their area of expertise. They will refer their investor clients to a specialist in the field.
But it is not always thus. Especially in a market like the one we have today, real estate licensees who primarily engage in listings and sales may sometimes find themselves slipping into property management chores as well. It is more likely today because of the small investor market. In many parts of the country declining prices and growing REO inventory have made real estate rental property a more plausible proposition than during the past few years. This phenomenon is accentuated as stocks and bonds look worse and worse.
We are not talking here about large, multi-unit rental complexes; but, rather, condominiums, small single-family residences, and smaller scale units such as duplexes through fourplexes. In such cases, investor buyers may be acquiring their first rental property (or another one of just a few); they are unlikely already to have a relationship with a property management company, or to see the need for one. Frequently, they will ask the selling agent if he or she will manage it for them. Often, the answer will be "yes."
Agreeing to take on the management of one or a couple of units may result from the best of motives. There may be a sincere desire to help. Or perhaps it is less pure, and one of those things a salesperson does to remove a possible objection to a purchase. Or, maybe it just results from a desire to increase one's income. None of these is bad. Caution, however, is called for.
First, both owner and agent want to know that whatever arrangement they have is one that complies with state law. How is the agent going to receive compensation? In California, as in many states, payment to an agent for real estate services can only be made through his or her broker. The law prohibits owners from paying agents directly.
But is the property management arrangement something the broker wants? Many brokers don't have and don't want property management business. Not the least of reasons for this is that, depending on the circumstances, errors & omissions insurance may be expensive, if not impossible, to obtain.
A second large issue relates to the handling of funds. Again using California as an example, extensive and complex trust fund accounting procedures are required. Neither an agent nor broker can simply follow their own rules – even if they are completely honest – when handling money on behalf of their clients.
Just as owners need to know that their agents are handling their money in a proper and accountable manner, agents and brokers want to have procedures and agreements in place to insure that an owner's financial misbehavior does not become their liability. For example, this has happened more than once: A tenant takes possession and the rent and security deposit are sent on to the owner. When the tenant leaves (and presuming the premises are in good condition), the return of the security deposit is due within a specified period of time. But, lo and behold, the owner either doesn't have it or for some reason refuses to release it. Guess who's going to wind up in court, especially if the owner is out of state?
The sale of small rental properties is one of the brighter spots in today's market. It's good for the investors, good for agents, and good for the economy. It should not be discouraged. But the management of such properties needs to be carefully considered. Bob Hunt Copyright 2009 Realty Times. All Rights Reserved.
Visit RealtyTimes.com