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Risk Management in Real Estate By far the highest number of commission penalties, consumer complaints, and license suspensions and revocations in most states, are connected to property management. Not that those property managers are being inefficient. It’s just property management one extremely transaction-heavy 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 make such transactions less important, and it doesn’t lower the risk involved in doing them. 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. Every one of these transactions bring some kind of risk into the business, especially those related to financial functions. This makes risk management very important. A sizable disaster can economically threaten the property’s survival. The records kept play a huge part, as any legal action taken by others can be easily disputed if there are detailed records that oppose their claims.
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A large component of risk management is determining risk opposite reward. Let’s say a property has a swimming pool on it. The property manager and owner should balance the pool’s value with its risks. After a risk is identified, it should be addressed in one of three ways:
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Avoidance The pool will be taken out because the cost of insurance or the risks involved are greater than the extra rental income. Control The pool is retained but a coded lock and fence will be installed to keep the area off limits to small kids. 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 different states, you only need to maintain transaction records for half a year. 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. It’s much harder to plead your case if your copies have already been destroyed. 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.