Property Management - Part 1 - Chapters 73-75 Flashcards
Identify conduct requiring licensing for property managers and their employees
An individual or Corporation is to hold a broker license if they perform or offer to perform any Property Management Services on behalf of another for a fee. An individual employed by the broker to perform activities related to contacts with the landlord is to hold a broker or sales agent license.
However, several licensing exemptions exist. A broker who manages apartment complexes or the landlord may hire unlicensed staff to perform administrative and non-discretionary duties. Resident managers, attorneys, bankruptcy trustees, and to an extent those who hold power of attorney are not required to be licensed.
The owner of income-producing real estate does not need a real estate broker license to operate as a principal. The owner operator is not acting on behalf of someone else as their agent when managing their own property.
On the other hand, if the owner operator decides to hire an individual to take over the general mgmt of the apartment complex, the individual employed to act as property manager under normal business circumstances is to be licensed by the DRE as a California real estate broker.
An individual or Corporation is to hold a broker license if they perform or offer to perform any of the following services on behalf of another in exchange for a fee:
* listing real estate for rent or lease
* marketing the property to locate prospective tenants
* listing perspective tenants for rental release of RE
* locating property to rent or lease
* selling buying or exchanging existing leasehold interest in real estate
* managing income-producing properties
* collecting rent from tenants of Real Estate
an individual employed by a broker to perform any of the above services will also be licensed by the DRE either as a broker or sales agent
Differentiate between activities which require a license and activities which do not require a license
Unlicensed employees of a broker or landlord may perform tenant related negotiations, such as:
- showing rental units and facilities to prospective tenants
- providing prospective tenants with information about rent rates and lease agreement provisions
- accepting tenant screening fees
- accepting signed lease and rental agreements from tenants
- accepting rent and security deposit from tenant
Licensed employees may perform any activities unlicensed employees perform. However, licensed employees are additionally able to perform activities relating to contacts with the landlord, as opposed to the tenant, about the leasing, care of the property, and accounting. Activities which licensed employees of the broker may perform include:
- landlord related solicitations
- entering into property management or leasing agent agreements with the landlord
- rental or lease negotiations
- care and maintenance of the property
- marketing of the unit or space
- accounting
Distinguish state-mandated licensing from third-party marketing designations
A broker license gives the licensee authority to manage any property. However, the license does not automatically confer on the broker the designation of certified Common Interest Development (CID) managers. It is not mandatory under state law for a broker to be certified to manage a common interest development, but some employers may request it.
The Benchmark third-party professional certification is the certified Community Association Manager. This certification is issued by the California Association of Community Managers. This designation is not an issue involving the DRE. However, the minimum educational criteria for becoming a certified CID manager are set by California law.
Further, it is widely held misconception that property managers are required to hold a Certified Property Manager (CPM) membership with the Institute of Real Estate Management IREM to perform Property Management activities.
The CPM designation is a non required unofficial designation bestowed by a private non-regulatory organization. Brokers and agents may earn them by completing private coursework and submitting proof of experience in Property Management.
certified CID manager
A CERTIFIED CID MANAGER or certified common interest development manager, is a non required professional designation certifying an individual has met legislated educational requirements specific to managing common interest development.
contingency fee
A CONTINGENCY FEE is an incentive bonus paid upon successfully completing or hitting certain benchmarks, or received as compensation on the occurrence of an event.
If a landlord is a corporation, limited liability company or partnership, any officer of the entity may manage the entity’s property without a broker license. However, the unlicensed officer may not receive any contingency fees or extra compensation based on achievement, production or occupancy factors during their management of the property. They are to be salaried or on wages. The same rules apply to resident managers.
resident managers
Apartment complexes with 16 or more units will have a RESIDENT MANAGER. Apartment building management has special licensing rules distinguishing resident Managers from non-resident property managers and their other employees. A resident manager is employed by either the landlord or the broker who manages the apartment building or complex. The resident manager lives on the premises and which is a requirement of their employment. A resident manager DOES NOT NEED a real estate license to manage the apartment complex.
Recognize and act on a property manager’s responsibilities
A property manager employs a higher standard of conduct regarding their operation of a property that a typical landlord might. The property manager also applies a higher standard of conduct when overseeing:
- the maintenance of rental property
- filling vacancies with suitable tenants
- collecting rent
- accounting to the landlord
Implement a property manager’s best practices in fulfilling their professional responsibilities
For a property manager to implement their best practices in fulfilling their professional responsibilities they should:
- provide a high level of Duty of care
- meet all their management obligations owed to the landlord
- fulfill all their other activities of a manager
- act with The Prudent investor standard
- conduct a property analysis to understand their tasks
- understand that curb appeal is critical
- obtain a cursory title check or property profile and do a title profile analysis to avoid surprises
- maintain a file activity sheet in order to do due diligence and maintain a paper trail
- conduct frequent, well documented inspections of the property
- periodically review the leases to minimize expenses and maximize rental income
- maintain and repair the property to maximize rent
- disclose all earnings from all sources
- maintain the Goodwill value of the property
- maintain a well-documented trust account to show the flow of income and expenditures from the property
- provide detailed accounting to the landlord
All trust accounts need to be maintained in accordance with standard accounting procedures. A property manager is to diligently manage all accounts to avoid claims of mishandling. The property manager is also responsible for providing a statement of account the landlord.
goodwill
The way a property is operated develops GOODWILL with tenants. Economically, GOODWILL equates to the earning power of the property. A property manager in the ordinary course of managing property will concentrate on increasing the intangible image - GOODWILL - of the property. Goodwill is maintained when the property manager:
- cares for the appearance of the property
- maintains an appropriate tenant mix (without employing prohibited discriminatory selection)
- gives effective and timely attention to the tenants concerns
property profile
A PROPERTY PROFILE is a report from a title company providing information about a property’s ownership, encumbrances, use restrictions and comparable sales data. A title check is also commonly called a property profile and is supplied online by title companies.
PROPERTY PROFILE = TITLE CHECK
prudent investor standard
A property manager has a duty to employ a higher standard of conduct regarding the operation of a property than a typical landlord might apply. This standard is called The PRUDENT INVESTOR STANDARD.
A prudent investor is a person who has the knowledge and expertise to determine the wisest conduct for reasonably managing a property. The Prudent Investor Standard is the MINIMUM LEVEL of competency which can be expected of a property manager by a landlord.
start-up fee
A START-UP FEE is a flat, one time fee charged by a property manager for the time and effort taken to become sufficiently familiar with the operations of the property to commence management.
trust account
A TRUST ACCOUNT is an account separate and apart and physically segregated from a Broker’s own funds, in which the broker is required by law to deposit all funds received for clients within 3 business days after receiving the funds.
trust funds
TRUST FUNDS are items which have or evidence monetary value held by a broker for a client when acting in a real estate transaction. A property manager is required to deposit all funds collected on behalf of a landlord into a trust account within 3 business days of receipt. These funds are called trust funds. Trust funds collected by a property manager include:
- security deposits
- rent
- cash reserves
- start-up fees
Negotiate the various terms for occupancy under residential rental or lease agreements
A fixed-term lease agreement creates a tenancy that continues for a fixed period. A month-to-month rental (or periodic rental) agreement runs for an indefinite period of time. it automatically renews monthly, and on the same terms, until modified or terminated by notice.
Residential landlords and tenants typically enter into either a fixed-term lease agreement or a periodic rental agreement. Residential periodic tenancies frequently take the form of month-to-month rental agreements.
Residential rental and Lease agreements both grant the tenant the right to possession. Both impose the same rights and obligations regarding maintenance of the property on the landlord and tenant. However, the tenant expectation of continued occupancy and their obligation to pay future rent differs between a rental agreement and a lease agreement.
A month-to-month rental agreement runs for an indefinite period of time. It automatically renews monthly, and on the same terms, until modified or terminated by notice. Periodic tenancy can be terminated by either the landlord or the tenant on 30 days written notice. However a landlord needs to give a tenant that has occupied for more than one year at least 60 days written notice.
On the other hand, a lease agreement creates a tenancy that continues for a fixed period of time. At the end of the fixed period, both the tenants right of possession and the lease agreement expires. The terms of the lease set the expiration date, and therefore no further notice is required.
Unlike a periodic tenancy, the lease agreement does not automatically renew, unless an option to renew or extend has been written into the lease agreement and exercised.
