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Real Estate Risk Management

By far the highest number of commission penalties, consumer complaints, and license suspensions and revocations in most states, are connected to property management. It’s not that property managers are ineffective. It’s just that the business of property management is very transaction-intensive. 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. Being a property manager, you’re dealing with an owner to market and rent their property, handle rent collection and remit the money to them, as well as to manage the property in all aspects, from maintenance to enforcement of tenant rules.

Doing this means you’re transacting with owners and tenants, repair companies, advertising agencies, contractors and the rest. 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. A sizable disaster can economically threaten the property’s survival. Record-keeping plays a significant part, with any legal action taken by others being easily disputed by existing detailed records that contest their claims.
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A large component of risk management is determining risk opposite reward. Let’s take, for example, a property that comes with a swimming pool. The property manager and owner must maintain a balance between the pool’s value and its risks. When a risk has been identified, it can addressed in three ways:
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Avoidance

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

Control

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 dealing with risk is to get insurance and transfer the risk to the insurance company. A good property manager will plan for issues, keep files and records of all activities, and constantly assesses these functions to find out if change is needed.

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. Most probably, if any of the parties may have a claim, anyone who intends to sue you for something that happened six years and ten days ago will still have their document copies on hand. 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.