Ch. 52 - Property Management Agreements

Property Description

It is standard to use the street address, but always helpful and wise to have the legal description attached as well. The contract should state clearly what part of the property is covered in the agreement.

Resident Manager

Lives on the property and may be employed by a real estate broker, a managing agent or an owner to manage a property on a part-time or full-time basis.

What kind of reports should a property manager be giving to the owner?

Monthly account statements Delinquent accounts report Detailed annual statement

3 types of budgets for property manager

Operating budget Capital reserve budget Stabilized budget

What are the three types of budgets that should be established for each project?

Operating budget Capital reserve budget Stabilized budget

Property Management Reports

Prepared by Property managers to inform owners of the status of the property, often including income, expenses, and disbursement information.

There are basically three types of maintenance.

Preventive maintenance Corrective maintenance Construction

How does preventive maintenance differ from corrective maintenance?

Preventive maintenance is a schedule of planned maintenance actions aimed at the prevention of breakdowns and failures, while corrective maintenance involves the repair or replacement of components which have already failed or broken down.

Education in Property Management

The Institute for Real Estate Management (IREM) was created as a subsidiary group of the National Association of REALTORS® in 1933. IREM offers both educational and professional programs in property management. - Certified Property Manager© (CPM©) for individuals who meet a certain level of education and experience requirements. - Accredited Residential Manager© (ARM©) for resident managers who have a lesser degree of training and on-site experience. - Accredited Management Organization© (AMO©) is reserved for companies who meet certain IREM guidelines and employ at least one CPM©

Property Management

The administration of rental or other property by a person or a team of people who are acting for the owner. The management of the property is done for a fee.

A property management agreement would contain some or all of the following information.

The beginning date of the contract Identification of the parties Property description Duration of the agreement Definition of manager responsibilities Definition of owner responsibilities Extent of authority Accounting responsibilities Insurance and risk management Reporting requirements Management fee Agreement Termination The property management agreement should be signed and dated by the parties.

How do the owner and the property manager arrive at a management fee?

The fee is a negotiated item. It often is a base fee and/or a percentage of the collected rents.

Identification of the Parties

The name of the owner and the property manager (or company) should be stated in the agreement. If the owner is a partnership, each partner should be named and should sign. If a corporation is the owner, an authorized officer must sign the agreement.

Duration of the Agreement

There is no standard term for a management contract. This is purely negotiable. Owners like to have a short contract, so they can get someone else if they are not satisfied. Conversely, managers like a longer term so that the difficult start-up work will pay off over time. One year is usually the minimum period.

Capital Expenses

These are long-term investments in land, buildings, and equipment; Such as new equipment

Definition of Manager Responsibilities

These duties should be clearly and precisely spelled out. It is important that this section contains details about what will happen if the property's account does not have enough money to cover the necessary disbursements..

Definition of Owner Responsibilities

These responsibilities should also be clearly specified. For example, is it the owner's responsibility to maintain the property insurance? Also the owner should provide the manager with a list of the monthly expenditures, such as mortgage payments and taxes.

Operating budget

This annual budget includes the income and expenses for ongoing operations.

Management Fee

This is also a negotiated item. It often is a base fee and/or a percentage of the collected rents. The manager may also receive additional compensation for leases that are renewed and for the supervision of repair projects undertaken.

Extent of Authority

This section deals with what authority the manager has with regard to such things as hiring and firing employees, setting the rental rates, and authorizing repairs.

Agreement Termination

This section should outline under what circumstances the agreement will be cancelled or renewed and what the notice requirements must be in such situations.

Accounting Responsibilities

This should include details on how security deposits, rents and expenditures must be handled. All funds collected on behalf of the owner are to be held in a trust account and only those expenditures outlined in the property management budget can be paid from this account. Security deposits must be handled in accordance with government regulations.

What is a property manager's first responsibility to the owner?

To realize the maximum profit on the property that is consistent with the owner's instructions.

A Property Manager has Dual Responsibility

To the owner - must understand that the owner is interested in the highest return from the property To the tenant - the best value for their money, including space that is properly maintained.

Individual Property Manager

Usually a real estate broker who manages properties for one owner or a number of owners. Such a manager may be a member of a small property management firm devoted to full time property management, he or she may be a self-employed manager, or he or she may be one of several managers in a large real estate firm.

Individual Building Manager

Usually manages a single large property. This manager may be employed by a property manager or directly by an owner and may or may not have a real estate license.

License Requirements for Property Management

When a property manager or management company performs real-estate-related tasks, such as collecting rent, for one owner and that owner is paying the manager a salary, the property manager does not need a real estate license. If the person or company is working for more than one owner, that person or company should have a real estate license. Persons working for such a management company should have a license so they can collect the rent and perform other real estate tasks.

Variable expenses

expenses that change from month to month; for such things as remodeling. Are usually not predictable, but can become a property need at any time.

Types of Property Managers

individual property manager individual building manager resident manager

Construction

involves remodeling, interior redecorating or new capital improvements. Money must be budgeted ahead of time for these activities.

Corrective maintenance

involves the repair or replacement of components which have failed or broken down. The objective of corrective maintenance is to restore the system to satisfactory operation within the shortest possible time. It is carried out in 3 steps: 1. Diagnose the problem. 2. Repair and/or replace the faulty component(s) 3. Verify the repair action.

Preventive maintenance

is a schedule of planned maintenance actions aimed at the prevention of breakdowns and failures.

Building Owners and Managers Association International, or BOMA

national federation of local and regional groups, includes 94 local associations, with chapters in all the major cities.

Prop Mgr responsibilities:

- Renting the units promptly at the highest market rent possible - Keeping operational and other costs within budget - Preserving and enhancing the physical value and prestige of the property

Stabilized Budget

A forecast of income and expenses for a property, typically over a three to five year period.

Capital reserve budget

A plan to finance long-term outlays, such as for fixed assets like facilities and equipment, includes variable and capital expenses.

Obligations to the Owner

A property manager becomes a designated agent when a management agreement is signed with an owner. A property manager is usually a general agent because of the authority vested in him/her by the principal.

To whom is a property manager responsible?

A property manager is responsible BOTH to the owner and to the tenants of a property.

What is the definition of a resident manager?

A resident manager lives on the property and may be employed by a real estate broker, a managing agent or an owner to manage a property on a part-time or full-time basis.

Insurance and Risk Management

As with any real estate venture, there are liabilities in property management and there are different types of liability. First is strict liability, in which an owner is liable for an injury to a person or damages to a property, without being at fault. Another type of liability is injury and property damage, in which the owner is negligent, and this negligence is the cause of an injury or property damage. Risk management refers not to living with the risk, but reducing the risk to a level at which it can be managed or tolerated. Insurance is a big step to help cushion owners against liabilities. It protects property owners from uncertainties of many potential losses.

Reporting Requirements

Detailed property management reports should be sent to the owner to allow him or her to monitor the manager's work and serve as a basis for future plans.

Property Management Agreement

Employment contract for a property manager. The owner is the principal and the property manager is the agent in this agreement, which creates a *general agency* between the parties. As such, the property manager owes duties to the owner.

The property manager's first responsibility is to realize the maximum profit on the property that is consistent with the owner's instructions by doing the following:

Generate an useful budget Define the parameters for maintenance Make sure all maintenance operations run smoothly Track income and expenses Create an effective marketing plan that considers future plans Send periodic reports to the owner

Property Types managed:

Apartments Condominiums Duplexes Industrial complexes Office complexes Shopping centers