© oncourse learning. all rights reserved. real estate management learning objectives define the...

© OnCourse Learning. All Rights Reserved.

Chapter 15Real Estate Management

Learning Objectives

Define the owner-property manager relationship Describe the principal functions of property managers



Owner-Property Manager Relationship

Purposes of property management:• Represent the owner or principal in much the same manner as the listing

agent represent the owner-seller of a property• A property manager is special limited agent with fiduciary duty to the

owner’s best interests Types of property requiring management:• Residential properties:• Apartments• Condominiums• Single-family homes• Vacation property




Types of property requiring management:• Retail and commercial property:

– Offices– Small retail stores– Office condominiums– Large shopping malls

• Industrial property – Industrial parks

Property management fee:• Strictly negotiable between the parties

Real Estate Management


Calculate property management fee

Darby Apartments consists of:• Eight units that rent for $325 per month • Six units that rent for $275• The manager’s fee is 10 percent of the gross monthly rents collected• During the month of March:

• Two of the $325 units were vacant • One of the $275 units was vacant

6 x $325 x 10% = $195.00 5 x $275 x 10% = $137.50

$332.50© OnCourse Learning. All Rights Reserved.

Chapter 15




Property management fee (cont.)

• Proration of a $325 unit rented for a portion of the month (last ten days)

$325 ÷ 30 x 10 days x 10% = $10.83 Manager’s fee

Travel agent referral fees in vacation rentals• An agent may pay a travel agent a referral fee if the travel agent refers a

prospect to the agent in the normal course of his business



Agency Relationships in Rentals

Agency-tenant agency relationships:• Must be express from beginning• Committed to writing before making an offer to rent or lease• Committed to writing from outset if agreement is exclusive for a specific

period of time• Undisclosed dual agency is prohibited




Property management agreements:• Property Management Agreement (PMA), with or without dual agency

agreement, must be in writing from the beginning of the relationship between property owner and agent

• Property Management Agreement (PMA) may contain automatic renewal clause with provisions for landlord or agent to end the agreement at the end of the initial or any subsequent renewal period by giving notice to terminate by the date specified in agreement




Property management contracts:• The property manager’s authority arises from the employment contract or

property management agreement• This agreement should include the following items:• Property location • Duration of the agency agreement• Agent’s fee • Handling of other fees including processing tenant rental applications,

late payment fees, and returned checks




Property management contracts (contd.):• Agent’s authority & responsibilities are spelled out in specific areas:

• NCREC holds that failure to perform the duties identified under this agreement constitutes a breach of agency which is a serious infraction of the license law

• Other agent compensation• Methods of marketing




Property management contracts (contd.):• Agreement should include the following:• Owner’s covenants:

• Agreement to pay for authorized services• Allow agent to offer property without discrimination• Maintain a specified amount of liability insurance• Hold agent harmless if allowable by law from any claim resulting

from managing property other than those claims resulting from agent’s gross negligence or deliberate misconduct

• Handling of security deposits by the agent• Authorizes the agent to put rental and tenant security deposits in an

interest bearing trust account• Reasonable notice must be provided to the tenant before the owner or

agent may enter the premises




Property management contracts (contd.):• Lead-based paint and lead-based paint hazards• Provides for the agent’s and owner’s duties to settle all accounts between

them upon termination of the contract• If owner wishes to sell the property, owner is required to notify agent• Owner required to notify the agent promptly if the property is put under

contract• Form encompasses scope of agreement• Non-waiver of default




Property management contracts (contd.):• Legal action instituted under the rental agreement will be heard only in

the county in which the property is located• The owner and agent are in an independent contractor relationship• Agent will act as the exclusive rental agent for the property• In the event of default by either party, non-defaulting party may

terminate the contract• All expenses related to the default shall be repaid to the prevailing party




Property management contracts (contd.):• Owner warrants to the agent that he has the authority to enter into this

property management contract• Owner warrants that there is no other party with an interest in the

property who would be required to sign the contract• Any notices required by either party shall be in writing and shall be sent

via certified mail• The contract shall be binding upon heirs, legal and personal

representatives, successors and permitted assignees of the parties




Property management contracts (contd.):• Agent may assign his rights and responsibilities under the contract at

any time to an entity licensed to engage in real estate brokerage in North Carolina. The owner may, however, terminate the contract without cause with 60 days written notice

• Owners acknowledges that the agent is being retained solely for real estate services and should not be relied on for professional advice outside this area

• Lists any addenda attached to the contract




Duties of the property manager:• W-2 employees of a broker are permitted to perform certain administrative

tasks associated with renting/leasing the property• Referral of a potential client to a licensee by a W-2 employee (or any

unlicensed individual) for compensation is prohibited• A resident manager lives on the premises and is a salaried employee of the

owner. This person is required to have a real estate license unless he is employed by a corporation that owns the property or is a partner with an ownership interest in the entity that owns the property

Real Estate Management

Principal Function of the Property Manager

Marketing and renting the property:• Property manager establishes effective advertising schedule to attract

qualified tenants• The manager tries to keep the vacancy rate low without charging rates

significantly below those of comparable properties in the market area Qualifying and Selecting Tenants:• The owner/manager should obtain a credit report and criminal background

check on all prospective tenants• The owner/manager will want to determine the prospective tenant has

sufficient income in order to pay the rent• The owner/manager should not engage in discriminatory practices


Chapter 15




Collecting rents and security deposits:• The faithful accounting of all funds• The Real Estate License Law and the Rules and Regulations of the Real

Estate Commission enforce strict duties of accounting under the operation of trust accounts

• The North Carolina Residential Rental Agreements Act influences the relationship of the manager to tenant in residential property

• The North Carolina Tenant Security Deposit Act specifically addresses the amounts, handling, accounting, and refund of funds belonging to tenants

Instituting legal actions:• Agents are not authorized to engage in actions that constitute practicing law

including:• Giving legal advice or opinion• Drafting documents• Attempting to provide legal representation for another person




Maintaining the property:• Upkeep of the property to maintain and increase value• Appropriate types and amount of insurance are maintained on the property

Performing the landlord’s duties:• The agent becomes responsible for performing all of the same functions that

are required of the landlord/owner. Failure to perform these required functions is a specific example of the breach of the duty of agency as defined by the Real Estate Commission.

Maintaining records and reporting to the owner:• The property management report is a periodic accounting of funds received

and disbursed. It is produced by the agent for the owner• Calculations to determine gross rent property management fees, and net to

owner



1. John of AAA Realty manages Gail’s property for an 8 percent monthly fee. In August, Units A and B were occupied. Each unit rents for $570 per month. The rent for both units has been paid in full and on time. How much of the rent does Gail actually receive?

a. Gross rent collected is the sum of the total rents:$570+570

$1,140

b. The property management fee is the gross rent collected times the monthly fee:

$1,140 x 8% = $91.20

c. Gail’s check equals the gross rent minus the fee:

$1,140.00 - 91.20 $1,048.80



2. In September, Unit A was rented for the entire month but Unit B was rented for only 14 days. How much does Gail receive this month?

a. Prorate the amount collected for Unit B based on 30-day month):

$570 x 14 (occupied days) = $2630

b. Gross rent collected: $570+266 $836

c. Gross rent times monthly fee: $836 x 8% = $66.88

d. Gail’s check equals the gross rent minus the fee: $836.00- 66.88

$769.12



3. In October, Gail’s units were both rented. However, the plumbing in Unit A neededrepair at a cost of $86, and Unit B was sprayed for insects at the normal rate of $25.These bills

were deducted from the individual proceeds received from each unit. How much did she receive from Unit A? from Unit B? How much did she receive altogether?a. Determine the separate management fees for each unit:

b. Determine the individual proceeds before the bills:

c. Subtract the individual expenses from each unit:

d. Add proceeds from Unit A and Unit B to find the total:

Unit A Unit B $570 x 8% = $45.60 $570 x 8% = $45.60

$570.00 $570.00 - 45.60 - 45.60 $524.40 $524.40

$524.40 $524.40 - 86.00 - 25.00

$438.40 from Unit A $499.40 from Unit B$438.40

+499.40

$937.80

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Documents

property owner

commercial property

property managers authority

property location duration

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dual agency agreement

listing agent

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