© OnCourse Learning. All Rights Reserved. Real Estate Management Learning Objectives  Define the owner-property manager relationship  Describe the principal functions of property managers

© OnCourse Learning. All Rights Reserved. Real Estate Management Owner-Property Manager Relationship  Purposes of property management: Represent the owner or principal in much the same manner as the listing agent represent the owner-seller of a property A property manager is special limited agent with fiduciary duty to the owner’s best interests  Types of property requiring management: Residential properties: Apartments Condominiums Single-family homes Vacation property

© OnCourse Learning. All Rights Reserved. Real Estate Management Owner-Property Manager Relationship  Types of property requiring management: Retail and commercial property: –Offices –Small retail stores –Office condominiums –Large shopping malls Industrial property –Industrial parks  Property management fee: Strictly negotiable between the parties

Real Estate Management Owner-Property Manager Relationship Calculate property management fee Darby Apartments consists of: Eight units that rent for $325 per month Six units that rent for $275 The manager’s fee is 10 percent of the gross monthly rents collected During the month of March: Two of the $325 units were vacant One of the $275 units was vacant 6 x $325 x 10% = $ x $275 x 10% = $ $ © OnCourse Learning. All Rights Reserved.

Real Estate Management Owner-Property Manager Relationship  Property management fee (cont.) Proration of a $325 unit rented for a portion of the month (last ten days) $325 ÷ 30 x 10 days x 10% = $10.83 Manager’s fee  Travel agent referral fees in vacation rentals An agent may pay a travel agent a referral fee if the travel agent refers a prospect to the agent in the normal course of his business

© OnCourse Learning. All Rights Reserved. Real Estate Management Agency Relationships in Rentals  Agency-tenant agency relationships: Must be express from beginning Committed to writing before making an offer to rent or lease Committed to writing from outset if agreement is exclusive for a specific period of time Undisclosed dual agency is prohibited

© OnCourse Learning. All Rights Reserved. Real Estate Management Agency Relationships in Rentals  Property management agreements: Property Management Agreement (PMA), with or without dual agency agreement, must be in writing from the beginning of the relationship between property owner and agent Property Management Agreement (PMA) may contain automatic renewal clause with provisions for landlord or agent to end the agreement at the end of the initial or any subsequent renewal period by giving notice to terminate by the date specified in agreement

© OnCourse Learning. All Rights Reserved. Real Estate Management Agency Relationships in Rentals  Property management contracts: The property manager’s authority arises from the employment contract or property management agreement This agreement should include the following items: Property location Duration of the agency agreement Agent’s fee Handling of other fees including processing tenant rental applications, late payment fees, and returned checks

© OnCourse Learning. All Rights Reserved. Real Estate Management Agency Relationships in Rentals  Property management contracts (contd.): Agent’s authority & responsibilities are spelled out in specific areas: NCREC holds that failure to perform the duties identified under this agreement constitutes a breach of agency which is a serious infraction of the license law Other agent compensation Methods of marketing

© OnCourse Learning. All Rights Reserved. Real Estate Management Agency Relationships in Rentals  Property management contracts (contd.): Agreement should include the following: Owner’s covenants: Agreement to pay for authorized services Allow agent to offer property without discrimination Maintain a specified amount of liability insurance Hold agent harmless if allowable by law from any claim resulting from managing property other than those claims resulting from agent’s gross negligence or deliberate misconduct Handling of security deposits by the agent Authorizes the agent to put rental and tenant security deposits in an interest bearing trust account Reasonable notice must be provided to the tenant before the owner or agent may enter the premises

© OnCourse Learning. All Rights Reserved. Real Estate Management Agency Relationships in Rentals  Property management contracts (contd.): Lead-based paint and lead-based paint hazards Provides for the agent’s and owner’s duties to settle all accounts between them upon termination of the contract If owner wishes to sell the property, owner is required to notify agent Owner required to notify the agent promptly if the property is put under contract Form encompasses scope of agreement Non-waiver of default

© OnCourse Learning. All Rights Reserved. Real Estate Management Agency Relationships in Rentals  Property management contracts (contd.): Legal action instituted under the rental agreement will be heard only in the county in which the property is located The owner and agent are in an independent contractor relationship Agent will act as the exclusive rental agent for the property In the event of default by either party, non-defaulting party may terminate the contract All expenses related to the default shall be repaid to the prevailing party

© OnCourse Learning. All Rights Reserved. Real Estate Management Agency Relationships in Rentals  Property management contracts (contd.): Owner warrants to the agent that he has the authority to enter into this property management contract Owner warrants that there is no other party with an interest in the property who would be required to sign the contract Any notices required by either party shall be in writing and shall be sent via certified mail The contract shall be binding upon heirs, legal and personal representatives, successors and permitted assignees of the parties

© OnCourse Learning. All Rights Reserved. Real Estate Management Agency Relationships in Rentals  Property management contracts (contd.): Agent may assign his rights and responsibilities under the contract at any time to an entity licensed to engage in real estate brokerage in North Carolina. The owner may, however, terminate the contract without cause with 60 days written notice Owners acknowledges that the agent is being retained solely for real estate services and should not be relied on for professional advice outside this area Lists any addenda attached to the contract

© OnCourse Learning. All Rights Reserved. Real Estate Management Agency Relationships in Rentals  Duties of the property manager: W-2 employees of a broker are permitted to perform certain administrative tasks associated with renting/leasing the property Referral of a potential client to a licensee by a W-2 employee (or any unlicensed individual) for compensation is prohibited A resident manager lives on the premises and is a salaried employee of the owner. This person is required to have a real estate license unless he is employed by a corporation that owns the property or is a partner with an ownership interest in the entity that owns the property

© OnCourse Learning. All Rights Reserved. Real Estate Management

Principal Function of the Property Manager  Marketing and renting the property: Property manager establishes effective advertising schedule to attract qualified tenants The manager tries to keep the vacancy rate low without charging rates significantly below those of comparable properties in the market area  Qualifying and Selecting Tenants: The owner/manager should obtain a credit report and criminal background check on all prospective tenants The owner/manager will want to determine the prospective tenant has sufficient income in order to pay the rent The owner/manager should not engage in discriminatory practices © OnCourse Learning. All Rights Reserved.

Real Estate Management Principal Function of the Property Manager  Collecting rents and security deposits: The faithful accounting of all funds The Real Estate License Law and the Rules and Regulations of the Real Estate Commission enforce strict duties of accounting under the operation of trust accounts The North Carolina Residential Rental Agreements Act influences the relationship of the manager to tenant in residential property The North Carolina Tenant Security Deposit Act specifically addresses the amounts, handling, accounting, and refund of funds belonging to tenants  Instituting legal actions: Agents are not authorized to engage in actions that constitute practicing law including: Giving legal advice or opinion Drafting documents Attempting to provide legal representation for another person

© OnCourse Learning. All Rights Reserved. Real Estate Management Principal Function of the Property Manager  Maintaining the property: Upkeep of the property to maintain and increase value Appropriate types and amount of insurance are maintained on the property  Performing the landlord’s duties: The agent becomes responsible for performing all of the same functions that are required of the landlord/owner. Failure to perform these required functions is a specific example of the breach of the duty of agency as defined by the Real Estate Commission.  Maintaining records and reporting to the owner: The property management report is a periodic accounting of funds received and disbursed. It is produced by the agent for the owner Calculations to determine gross rent property management fees, and net to owner

© OnCourse Learning. All Rights Reserved. Real Estate Management 1. John of AAA Realty manages Gail’s property for an 8 percent monthly fee. In August, Units A and B were occupied. Each unit rents for $570 per month. The rent for both units has been paid in full and on time. How much of the rent does Gail actually receive? a. Gross rent collected is the sum of the total rents: $ $1,140 b. The property management fee is the gross rent collected times the monthly fee: $1,140 x 8% = $91.20 c. Gail’s check equals the gross rent minus the fee: $1, $1,048.80

© OnCourse Learning. All Rights Reserved. Real Estate Management 2. In September, Unit A was rented for the entire month but Unit B was rented for only 14 days. How much does Gail receive this month? a. Prorate the amount collected for Unit B based on 30-day month): $570 x 14 (occupied days) = $26 30 b. Gross rent collected: $ $836 c. Gross rent times monthly fee: $836 x 8% = $66.88 d. Gail’s check equals the gross rent minus the fee: $ $769.12

© OnCourse Learning. All Rights Reserved. Real Estate Management 3. In October, Gail’s units were both rented. However, the plumbing in Unit A needed repair at a cost of $86, and Unit B was sprayed for insects at the normal rate of $25.These bills were deducted from the individual proceeds received from each unit. How much did she receive from Unit A? from Unit B? How much did she receive altogether? a. Determine the separate management fees for each unit: b. Determine the individual proceeds before the bills: c. Subtract the individual expenses from each unit: d. Add proceeds from Unit A and Unit B to find the total : Unit A Unit B $570 x 8% = $45.60 $570 x 8% = $45.60 $ $ $ $ $ from Unit A $ from Unit B $ $937.80