Risk Management in Real Estate

The most number of consumer complaints, commission penalties, and license suspensions and revocations by far in most states, occur in the property management industry. It’s not that property managers are ineffective. It’s just that property management is a very transaction-intensive business. Even as a typical agent might handle dozens of sale transactions every year, a typical property manager can tackle hundreds of smaller transactions.

The fact that they’re smaller doesn’t indicate that those transactions are less important, and it doesn’t diminish the risk they involve. If you’re a property manager, you’re dealing with an owner as you market and rent their property, collect and remit their rent, and handle practically all other aspects of property management, from implementing tenant rules to maintenance.

That means you’re transacting with owners and tenants, repair guys, advertising companies, contractors and so on. All of these transactions inject some type of risk into your business, especially those which are related to finances.
Risk management is, of course, extremely important. The economic survival of a property can be threatened by a huge disaster. Record-keeping plays a significant part, with any legal action taken by others being easily disputed by existing detailed records that contest their claims.
The Essentials of Options – The Basics

A substantial part of risk management is the determination of risk against reward. Take, for example, a property with a swimming pool on it. The property manager and owner must maintain a balance between the pool’s value and its risks. When a risk is identified, there are three ways to address them:
The Key Elements of Great Professionals


The pool will be removed because the additional rental income is a lot less than the cost of insurance or the risks involved.


If the pool is retained, a coded lock and fence will be installed to keep small children out.

Risk Transfer

The most common way of handling risk is to purchase insurance so that the risk is transferred to the insurer. The successful property manager will anticipate and plan for problems, keep records of each activity, and consistently assess these functions to know if change is in order.

Documents and Email

In a lot of states, six years is the mandatory period for keeping transaction records. It is best to keep them for much longer though, especially if you may do so digitally or electronically. You can be sure that if any of the parties have a claim, a person who wants to sue you for an incident six years and ten days ago, can still have their document copies. If you’ve already destroyed your own copies, it would be much harder to plead your case. Finally, in terms of email, any court action that involves a federally guaranteed loan (pretty much all residential deals), will be able to compel you to produce emails that have something to do with your transaction and communications with your customer or client.