Chapter 15
Real Estate Management
Learning Objectives
 Define the owner-property manager relationship
 Describe the principal functions of property managers
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Chapter 15
Real Estate Management
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
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Chapter 15
Real Estate Management
Owner-Property Manager Relationship
 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
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Chapter 15
Real Estate Management
Owner-Property Manager Relationship
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
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Chapter 15
Real Estate Management
Owner-Property Manager Relationship
 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
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Chapter 15
Real Estate Management
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
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Chapter 15
Real Estate Management
Agency Relationships in Rentals
 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
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Chapter 15
Real Estate Management
Agency Relationships in Rentals
 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
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Chapter 15
Real Estate Management
Agency Relationships in Rentals
 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
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Chapter 15
Real Estate Management
Agency Relationships in Rentals
 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
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Chapter 15
Real Estate Management
Agency Relationships in Rentals
 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
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Chapter 15
Real Estate Management
Agency Relationships in Rentals
 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
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Chapter 15
Real Estate Management
Agency Relationships in Rentals
 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
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Chapter 15
Real Estate Management
Agency Relationships in Rentals
 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
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Chapter 15
Real Estate Management
Agency Relationships in Rentals
 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
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Chapter 15
Real Estate Management
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Chapter 15
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
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Chapter 15
Real Estate Management
Principal Function of the Property Manager
 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
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Chapter 15
Real Estate Management
Principal Function of the Property Manager
 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
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Chapter 15
Real Estate Management
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:
b. The property management fee is the
gross rent collected times the monthly fee:
c. Gail’s check equals the gross rent minus the
fee:
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$570
+570
$1,140
$1,140 x 8% = $91.20
$1,140.00
- 91.20
$1,048.80
Chapter 15
Real Estate Management
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) = $26
30
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:
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$836.00
- 66.88
$769.12
Chapter 15
Real Estate Management
3. In October, Gail’s units were both rented. However, the plumbing in Unit A needed
repair 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:
Unit A
$570 x 8% = $45.60
Unit B
$570 x 8% = $45.60
b. Determine the individual proceeds before the bills:
$570.00
- 45.60
$524.40
$570.00
- 45.60
$524.40
c. Subtract the individual expenses from each unit:
$524.40
- 86.00
$438.40 from Unit A
$524.40
- 25.00
$499.40 from Unit B
d. Add proceeds from Unit A and Unit B to find the
total:
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$438.40
+499.40
$937.80