1. Alabama Real Estate Exam Property Management 2017
Steve McTyeire, MBA
Broker, Real Estate Instructor
New Vocation Realty School
Broker in Alabama, Florida & Georgia

2. 6. Property Management 8 Questions
Learning Objectives
Understand provisions of lease contracts
Learn elements of contracts
Learn about trust fund accounting
Know why tenants leave
Evictions

3. 6. Property Management 8 Questions
General Principles of Property Mgt. Agreements
Basic Provisions / Purpose / Elements of
Property Management Agreements
Types of Contracts
Duties and Obligations of the Parties
Market Analysis and Tenant Acquisition
Accounts and Disbursements
Property Maintenance and Improvements
Evictions

5. 6. Property Management
General Principles of Property Management Agreements
Agency agreement between property owner (principal)
& management company’s broker (agent)
Agent responsibility: Honest COLD AC
Similar to listing agreement because it list property for rent
Plus,
Gives broker general agent authority to manage over time
Sets fees, duties, and other agreed upon terms

6. 6. Property Management B. Basic Provisions / Purpose
Elements of Property Management Agreements
Names parties to bi-lateral agency management agreement
Outlining owner goals for:
Specific parcel
Enhance owner value
Market property
Accept applications
Negotiate leases
Accept rent
Delegate repairs
Disperse funds
Accounting
Inspect / Correct

7. Negotiating
Property
Management
Agreements

8. 6. Property Management C. Types of Contracts
Property Management Agreement between
Owner and Broker
Lease between Broker and Tenant
Lease is two contracts
Transfer of Possession
Granting Credit
Fair Credit Act Applies
Broker may also have property listed for sale
May be listed with another company for sale

9. Lease
Agreement

10. 6. Property Management D. Duties and Obligations of the Parties Owner
Pay mortgage, taxes, insurance & maintenance - TIMm
Give Tenant possession & quiet enjoyment
Maintain habitability
Work with Broker to retain Tenant (cheap to keep)
Due diligence in maintaining habitability
Maintenance issue #1 reason Tenants leave
Implied warranty of habitability
Legal doctrine that imposes this duty on landlord

11. 6. Property Management D. Duties and Obligations of Parties Broker
Due diligence in maintaining habitability
Maintenance issue #1 reason Tenants leave
Implied warranty of habitability
Legal doctrine that imposes this duty on landlord
Develop plan to maximize owner wealth
Regularly contact Tenants and maintain good relationships
Walk through inspections
Opportunity to ask about repairs
Enforce lease
Collect & Disperse funds
Conform to all laws
Correct as needed

12. 6. Property Management D. Duties and Obligations of the Parties Tenant
Follow lease rules
Pay rent on time
Notify landlord about issues
Take care of property – change HVAC filter
Give proper notice to vacate
Conform to all laws

13. 6. Property Management E. Market Analysis and Tenant Acquisition
Real estate is local,
but regional and national issues have some effect
Larger brokerages may have relocation connections
Everyone has Internet – Zillow
Supply & Demand drive rental market,
Higher demand drives prices higher
When rates are rising quickly, add a graduated rate clause
After first year, rate goes up X amount
If not rented quickly, lower price

14. 6. Property Management Fair, Consistent Obtaining tenants
Showing property
Negotiating lease
Price & Terms
Responsibilities of owner & tenant
Pet policy
Application process
Credit
Background
Fair, Consistent
Owner’s decision to accept tenant

15. Actual Eviction
When Tenant breaches lease
Non payment
Breach non-monetary
Landlord must file suit for possession (unlawful detainer)
Owner may file, but property manager must use attorney
Serve notice
Court
Landlord may not change locks or turn off utilities
Better to pay “cash for keys”
Constructive Eviction
When landlord breaches lease
Time to comply
Alabama Landlord and Tenant Act applies

16. Transfer of possession
Lease is two contracts
Transfer of possession
One stick in the bundle of property rights (UPEED)
Possession, and right to exclude others (with exceptions)
Use is lost by owner
Owner has reversionary right
Tenant stays beyond lease expiration creates:
Tenancy at Sufferance
If tenant and landlord agree to continue tenancy:
Creates Holdover Tenancy
Extending credit
Must follow Fair Credit Act
Similar to Fair Housing
Includes marital status, age & receipt of public assistance

17. RECAD not required for property management
No need to present to owner or tenant
Disclosure of material facts to lessee
Pre 1978 requires lead based paint form & pamphlet
Health & Safety deficiencies must be corrected
HOA or CC&R must be given to tenant, signed off

18. 6. Property Management E. Tenant Acquisition
More mobile app inquires everyday; make it easy to find property
Old fashion signs gets calls
Negotiate an earlier move in, even free days to get commitment
Offer commission to outside agencies to show property
Micro market if property fits a potential market like UAB
Showings; batch a few at same time
You will get stood up so often showing rentals, even confirming

19. 6. Property Management Obtain tenants by: Internet post Yard Sign
Show property, open house
Negotiate lease
Price & Terms
Responsibilities of owner & tenant
Pet policy, extra fees
Application process
Credit
Background
Owner’s decision to accept tenant

20. 6. Property Management F. Accounts and Disbursements
Real Estate Brokerages need at minimum 2 accounts if holding security deposits, earnest money and rents, along with at least one more as a company operating account
(AREC doesn’t audit operating account, but does trust, escrow)
Security Trust Account –
to hold earnest deposits, security deposits & pre-paid rent
Rental Receipts Escrow Account – to hold rent
These two trust account must be in a federally insured bank in Alabama with Qualifying Broker (QB) on account

21. 6. Property Management F. Disbursements
Security Deposits are held in escrow (trust) until lease ends and Tenant moves.
Damages and unpaid rent will be deducted and an accounting will be mailed to Tenant within 60 days – law changed in 2015 from 35 days
Security account must be reconciled every month for random audit by AREC

22. 6. Property Management F. Disbursements
Rental Receipt account is an escrow account to hold owner’s rent deposits
until final accounting for current month
Pay expenses, owners proceeds, with balance to company operating account
Negative balance in an escrow account could cost license
Co-mingling
Placing unearned funds from an escrow account into operating account
Conversion
Spending these funds for unintended purposes
Broker’s company operating account is used to pay company expenses

23. Must account for and return any escrow funds within 60 days of termination of lease

25. Rent $900 month
Divide by 30 days
$30 per day rent
Move in on 20th
10 days X $30 = $300
Prorating
Rent
20th
900
300
100
150
2,350
900 rent
300 pro rated
100 pet
1300 > RR
= 1050
To escrow
Security Account
Held until some future event

26. 6. Property Management
G. Property Maintenance and Improvements Life safety measures Prevent with safety procedures like smoke detectors (required) Fire Extinguisher Detect issues early - inspections Mitigate – reduce further loss Repair – as needed, owner approved risk management Regular maintenance is good policy – change filter, SD batteries, extinguisher inspections #1 reason tenants leave is poor maintenance

27. 6. Property Management
G. Property Maintenance and Improvements Improvements help keep tenants happy Paint & carpet have short life Preventative - Seasonal servicing of systems Corrective - Repair broken items, rails, door knobs Routine – Physical cleanliness of property - shrubs, trees Construction – upgrading to meet tenant needs - ramp

28. 6. Property Management
H. Evictions Actual Eviction – Landlord Evicts Tenant due to breach of lease non-payment of rent or infraction of rules Rent is paid in advance on set day every period, with short grace If not paid by grace date, contact tenant immediately and find out why Negotiate when rent will be paid, if not Post a “7 day pay or quit” notice giving 7 days to pay or get out This usually works Follow up with form “48 hour notice to file eviction” Keep pressure on Work with tenant to get rent paid or get out Empty units produce no rent “days are dollars”

29. 6. Property Management
H. Evictions (unlawful detainer) They just won’t pay or go Attorney must file paperwork, $500 Filing fee - $300 Tenant has 14 days to respond to complaint Court date will be about a month away Judgement, because they didn’t show $100 Sheriff to serve notice and place tenant’s possessions on street $300 Took 2 months total, plus property will be trashed Negotiate next time Days are dollars Offer cash for keys. Cheaper and quicker than eviction Give them $500 Saturday at 5 if out and property is broom clean $500 may not get them out, but $1,000 may, and you are still better off

30. 6. Property Management
H. Evictions Constructive Eviction - landlord will not repair or keep home habitable. 14 days notice to repair most systems, unless it is a one bath, toilet exploded, snakes everywhere. Can’t take the full 14 days to fix that Tenant can sue landlord to break lease, maybe even some damages

31. Eviction is called:
Unlawful Detainer

33. Co-mingle?

34. Lease has two parts, what are they?

35. In a property management agreement, name two broker duties?

36. In a property management agreement name two owner duties?

37. In a lease - name two tenant duties

38. What are two ways tenants are found?

39. What are two reasons tenants are evicted?

40. Is RECAD required in property management?

41. Name two things that tenant must be told about?

42. How long does a property manager have to account for
security deposits at end of lease?

43. How often does a property manager have to reconcile
security deposits for AREC?

44. What is primary reason tenants leave?

45. If tenant will not pay, can landlord turn off utilities?

46. What is an example of a life safety measure?

47. Does “Landlord –Tenant Act” apply to commercial properties?

48. Introduction
You, the broker, are key to managing risks in your office. If you are the qualifying broker, QB, the burden is even greater. Your risk management obligations can be divide into two areas – Managing Money and Managing People. It is up to you to ensure that your agents service clients and produce income while staying out of trouble. You are the key.

49. Learning Objectives: Define Trust Funds
Express the need for accounting / recordkeeping
Describe the need for trust fund maintenance
Identify the violations
State the penalties for mismanagement of money

50. Managing Money
I. Trust Funds Trust fund management Earnest money Property management funds Contract provisions

52. Funds Accounts and Disbursements
Real Estate Brokerages need at minimum 2 accounts if holding security deposits, earnest money and rents, along with at least one more as a company operating account
(AREC doesn’t audit this one, but does audit trust, escrow)
Security Trust Account – SD
to hold earnest deposits, security deposits & pre-paid rent
Rental Receipts Escrow Account – RR to hold rent
These two trust account must be in an FDIC insured bank in Alabama with Qualifying Broker (QB) on account
Operating Account OA
Pay Company expenses, commissions

53. Trust funds Disbursements
Security Deposits SD are held in escrow (trust) until the lease is over and Tenant moves or as contract provision states
Damages (detailed) and unpaid rent or fees owed to company will be deducted and an accounting will be mailed to Tenant within 60 days
This security account must be reconciled every month for random inspections by AREC

54. Trust Funds Disbursements
Rental Receipt RR account is an escrow account to hold tenant’s rent deposits until final accounting for month and then dispersed to owners with balance to company operating account
Never have a negative balance in an escrow account or you will lose license, and possibly go to jail
RR account may have a surplus of company funds to cover:
NSF checks from tenants or repairs
Placing unearned funds from an escrow account into operating account is co-mingling
Placing unearned funds from an escrow account into the operating account, then spending these funds is conversion

56. Property Ledger Rental Account
New Location Realty 1951 Hoover Ct #201 Hoover, AL
Rental Account
100 Creekstone Trail Calera, AL 35040
Josh Smith
3136 Woodchuck Trail Birmingham, AL 35242
Tom Tenant
Date
Debit
Credit
Escrow
9/18/2012
Security Deposit
900.00
Pet Deposit
150.00
9/24/2012
Rent October 900 +
300 prorated
Pet rent
100.00
Leasing fee
500.00
grass cut Larry Lee
50.00
Owner's Proceeds
750.00

57. Bank Reconciliation

58. Trust Funds Disbursements & transfers of earnest money
Different from security deposits
EM is from sale contract waiting to close transaction
Held in escrow account until:
Sale closes and is transferred to operating account or
Sale falls apart due to contingency, and it is returned to buyer
Sale falls apart due to breach
Both parties must agree to release of money
Either of these require a “mutual release”
If no agreement, must hold money in escrow

59. Trust Funds Replacing broker at company Or
Buying another company with escrow account
Must reconcile all trust accounts
Best to have AREC to audit at this point
Never buy a company, buy contracts only

60. Trust Funds Company may not pay its expenses from trust account
Company may not leave earned funds in trust account
Includes accrued interest
Interest is addressed in contract
Never a negative balance
Keep a small amount extra to cover bank charges

61. Trust Funds
Violations – Commingling - placing escrow money in company operating account Conversion – using escrow money to pay company bills These are common violations, and will result in fines and possible license revocation

62. Violations Using trust funds for operating expenses
Failure to deposit funds in a timely manner
Failure to disperse funds in a timely manner
Using trust money to offset accounts receivable
Using trust funds to offset other’s repair expenses
Failure to deposit cash immediately

63. Trust Funds Earnest deposits must be dispersed within 7 days
Security deposits must be accounted for and dispersed within 60 days
Tenant may be entitled to triple damages for non-compliance

64. Trust Funds Disciplinary Action Penalties Hearings Appeals
Minimum $250 up to $2,500
Hearings
Appeals

65. II. Auditing Procedures
Types of trust or escrow accounts
Earnest money
Security deposits
Rental receipts
Other business accounts
Operating

71. Auditing Procedures
All properties managed by agents with a company must have security and rental deposits held in brokerage company accounts or have a letter stating company is not involved with management. Dangerous for broker, because broker is still responsible for all acts of agents. Best policy is know what is going on with agents

72. Auditing Procedures

73. Audit Procedures

77. Fined and Suspended

78. Property inspection

79. 7 day pay or quit
48 hour

80. Managing People
III. Training & Supervision Law & company policies Discuss – With the growth of electronic and digital forms, brokers must consider how to maintain complete and accurate files. What policies and procedures should a broker have in place to practice good risk management in this area?

81. Training & Supervision
Responsibilities of Qualifying Broker - The burden imposed by the law Discuss – From a risk management perspective, discuss new licensees vs. experienced agents, and then full-time agents vs. dual career licensees What Training Is needed?

82. Training & Supervision
Strategies for supervising agents & staff Discuss – What steps can the broker take on a daily basis to ensure that the licensees in the company are following proper risk management practices?

83. Training & Supervision
Strategies for supervising agents & staff Discuss – How should a broker manage his/her agents who work from another location without micro-managing them?

84. Training & Supervision
Law requirements
Real Estate Commission
Local, state, & federal laws
Anti-trust
Other

85. Training & Supervision
Law and company policies Discuss – List the specific issues that should be included in an office policy manual

86. Training & Supervision
Risk Issues- Personnel files, office files, & confidentiality Discuss – Concerning the protection of confidential information, Where are the files kept? Who has access to them? What about the fax machine? s?

87. Training & Supervision
Advertising Marketing Social Networking Technology Discuss – How can the broker monitor the agents’ advertisements in the active multi-media locations available today?

88. Supplemental Content
Current Legal Issues Disciplinary Action Current Cases

89. Agent Selection
Independent contractor vs. employee New licensees Experienced agents Non-licensed assistants

90. Termination/Transfer