Principles 2: Unit 8: Property Management

Janet is a property manager for a large mixed-use space. She wishes to purchase insurance coverage for her negligence and innocent mistakes. What type of insurance should she purchase?

Errors and omissions

Alice is the property manager at an apartment complex. Her late-rent collection policy should include all contingencies EXCEPT

The answer is Alice should consider the personal situation of each renter when deciding whether to send late-payment notices. The terms of rent payment should be spelled out in the lease agreement, including time and place of payment, provisions and penalties for late payment, and provisions for cancellation and damages in case of nonpayment. A firm and consistent collection plan with a sufficient system of notices and records should be established by the property manager. A property manager who accepts a late payment without charging late fees specified in the contract or reminding the tenant making a late payment that the payment must always be paid on time risks losing (through waiver or lease modification) the right to later enforce the charge of late fees or to evict for late payment.

When Jeffrey, a property manager, and Pete, a property owner, negotiated a property management agreement, which provision of the agreement might have been based on a percentage of gross or net income, a commission on new rentals, a fixed fee, or a combination of methods?

The answer is management fee. The fee the manager receives also could have been affected by the size of the building and competitiveness in the local market.

Which of the following aspects of property management does NOT require a real estate license?

The answer is marketing property. If the duties include showing or leasing the property for the owner for which the manager gets paid, a license is required. A license is also required for any person who controls the acceptance or deposit of rent from a resident of a single-family residential real-property unit.

Which of the following would be considered a capital expenditure in creating a budget for a property manager?

The answer is renovation of the units. If an owner and a property manager decide that modernization or renovation of the property will enhance its value, the manager should budget money as capital expenditures to cover the costs of remodeling. In the case of large-scale construction, the expenses charged against the property's income should be spread over several years.

Which of the following aspects of property management requires a real estate license?

The answer is showing property. If the duties include showing or leasing the property for the owner for which the manager gets paid, a license is required. A license is also required for any person who controls the acceptance or deposit of rent from a resident of a single-family residential real-property unit.

Which of the following should NOT be a consideration in selecting a tenant?

The answer is the racial and ethnic background of the tenant. In selecting residential tenants, the property manager must comply with all federal and local fair housing laws.

Which of the following is NOT a legitimate reason to reject someone as a tenant?

The answer is too many calls to police to defend against spousal abuse. Abused spouses and families will often move specifically to avoid an abusive spouse. The fact that police have been called to stop violence at a previous location is not grounds for rejection at a new residence.

Must a professional management company have a "supervising broker" on staff, or may it simply hire individuals who have sales licenses?

The answer is yes, management companies must have supervising brokers who are responsible for the actions of the sales agents. Property managers and supervisors must be knowledgeable about a number of issues, not the least of which is fair housing law, as well as accounting practices.

Renovations have begun on a large apartment complex. Which statement applies to the property manager's responsibility for toxic fumes from the paint and carpeting and lack of proper ventilation?

These are environmental concerns that a property manager will need to address.

What is a growing trend among building owners and property managers (especially in the commercial and retail sections) to reduce liability and insurance costs?

Transferring risk to tenants by requiring them to have their own insurance

In managing property, unexpected variable expenses such as repairs, decorating, and supplies can be addressed using a cash

reserve fund.

A property manager's minimizing or eliminating the potentially enormous losses that can result from fire, water, accidents, or other causes is

risk management.

Faulty wiring causes a fire. The owner pays a $1,000 deductible, and the insurance company pays the rest. This is an example of

transferring or sharing the risk.

It is the obligation of the property manager to reach agreement with the property owner that the building

will be strategically marketed and maintained according to neighborhood quality, local demographics, need, and capacity to pay.

How are apartment rental rates typically expressed?

In monthly amounts

Reba manages a commercial office building in downtown El Paso. The occupancy level is 98%. What should Reba consider in determining the rent for office space?

She should raise the rent.

Joe is a commercial property manager. Which of the following might Joe have to consider in managing the property to meet a tenant's particular space needs?

Tenant improvements

Joe is a new property manager for Capital City Apartments. He is in the process of establishing rental rates for the units. What is Joe's basic concern in setting the rates?

That income from the rent covers expenses and provides a fair return on the investment

An owner-manager agreement between Jeffrey, a property manager, and Pete, a property owner, should include all of the following EXCEPT

The answer is a listing of previous owners of the property. The management agreement should be in writing and should cover description of the property, time period the agreement will cover, definition of management's responsibilities, statement of owner's goals, extent of manager's authority, reporting, management fee, and allocation of costs. A list of previous owners is not relevant to the property manager's duties and responsibilities to the current owner.

What is an example of the types of damages covered by extended coverage insurance?

The answer is claims paid for building damages after a tornado hits an office building. Extended coverage insurance provides insurance to cover hazards such as windstorm, hurricanes, hail, explosion, riot, civil commotion, smoke, aircraft, and land vehicles.

A real estate license is NOT required for those who, for a fee, rent or lease or procure tenants for a property unless they

The answer is collect or deposit rent for a single-family residence. The Real Estate License Act states that a real estate license is required when a person, for a fee, rents or leases or procures tenants for a property, unless that person is an onsite apartment manager or an employee of the owner of the property. The TREC Enforcement Division issued the following statement: "Property managers who merely collect rent [unless collecting or depositing rent for a single-family residence], do billing statements, and make maintenance arrangements do not need to be licensed. If a property management company is also going to lease and list for lease real property belonging to others, then the people who do the leasing and listing of the properties must be properly licensed." A person who controls the acceptance or deposit of rent from a resident of a single-family residence must be licensed.

Which of the following is NOT a function of property management?

The answer is construction. Buildings already are constructed before the professional property manager sets foot on the property. However, once the property management team is in place, almost every other aspect of the property is the responsibility of the manager.

To minimize the liability risk associated with the property's swimming pool, the manager could hire lifeguards, restrict the hours of operation, or both. This is an example of

The answer is controlling the risk. The manager can control the risk by taking preventive measures to minimize the risk.

While scheduling the repair of leaking faucets and broken air conditioners, the property manager is arranging for which type of maintenance to be performed?

The answer is corrective. Corrective maintenance fixes problems after they have occurred. The most frequently occurring maintenance, including regular cleaning, painting, and minor repairs, is routine maintenance. Preventive maintenance helps avoid future problems and expenses.

Which is NOT a provision of the FTC "Red Flag" FACTA rule?

The answer is if a property manager cannot resolve address discrepancies in a credit report and/or application, the manager may still lease to the rental applicant. Under certain circumstances, if a property manager verifies a correct address, it must be reported to the consumer reporting agency. If the manager cannot resolve the discrepancies, the rule states that the rental application is to be denied.

In setting an operating budget, which of the following is not a fixed expense?

The answer is repairs. The operating budget is based on anticipated revenues and expenses and must reflect the long-term goals of the owner. In preparing a budget, a manager should begin by allocating money for such continuous, fixed expenses as employees' salaries, real estate taxes, property taxes, and insurance premiums. Repairs are considered a variable expense.

Jeffrey, a property manager, and Pete, a property owner, negotiate a property management agreement. That agreement should include

a description of the property to be managed.

Maintenance, rehabilitation, insuring the property, and addressing environmental requirements are

a property manager's physical management activities.

A property manager for warehouses is considered

an industrial property manager.

When determining where risks lie in a building (such as pools, fire hazards, security issues, etc.), professional property managers should consult with

insurance professionals.

Vacuuming the hallways and washing the walls is an example of

routine maintenance.

The frequency and detail of the manager's periodic reports to the owner about the operations and financial position of the property should be determined by

the owner and the manager together.