WEEKLY PRACTICE TIP
BROKER RISK MANAGEMENT
Property Management
Q: I work for a mid-sized brokerage and am representing a seller of a two-unit building. Seller lives out of the area and would like me to manage the property during the listing and escrow. Specifically, with respect to the downstairs unit, seller wants me to collect the rent, deduct a property management fee and send the balance to her. She also wants me to have the tenant call me with any plumbing and repair issues.
With respect to the upstairs unit, the tenant has not paid the last month’s rent and has been a nuisance. Seller wants the unit vacant and wants me to serve a 3-day notice to quit or pay rent.
Do I need to tell my broker about this? Should I have a written agreement with the seller?
A: First, let’s discuss whether this is a good idea at all.
1. LICENSED ACTIVITY: Property management is licensed activity, so:
1. Salesperson License: If you have a salesperson’s license, it is your broker who will ultimately be responsible. It is also a violation of the DRE regulations for you to be paid directly. All payments for licensed activity must go through the broker.
2. Broker-Associate: If you have a broker’s license, you could do the property management under that license, but only if permitted in writing by the brokerage with whom you are affiliated.
2. RENTING vs. PROPERTY MANAGEMENT: There is a difference between just renting property and property management. In renting property you would represent landlord, tenant, or both until the unit is rented, the tenant moved in and the initial rent check delivered to the landlord; with NO responsibilities thereafter.
For more information on best practices in renting properties, see Weekly Practice Tip entitled: “Renting Properties for Residential Landlords”
Also, see the CAR Legal Q&A’s:
“Landlord-Tenant Guide for REALTORS®”
“Lease/Rental Disclosure Chart”
Activities which could constitute property management include:
(a) Receiving rent checks and forwarding them to the owner.
(b) Being available to take tenant calls for plumbers, repair, etc.
(c) Preparing or serving 3, 30 or 60-day notices to tenants to quit, pay rent, terminate tenancy or take other action under the lease.
(d) Negotiating lease terminations with tenants.
(e) Doing final walk-through inspections with tenants.
(f) Hiring, on behalf of seller, contractors, or vendors to do repair work on property, even listed property.
(g) Supervising or managing the repair or re-model work on property.
(h) As a buyer agent, doing a walk-through of the property after the seller moves out, after having remained in possession after COE.
3. INSURANCE: Property management activities may be excluded from your broker’s E&O Policy, or even from your broker’s civil general liability insurance. If a brokerage is going to participate in property management, they must secure the necessary insurance. If your broker prohibits property management, there may not be adequate insurance if an agent takes on management of properties.
4. CODE OF ETHICS: Article 11 of the NAR Code of Ethics states that if you are providing property management services you must “conform to the standards of practice and competence which are reasonably expected” of property managers. Also, if you are not an experienced property manager, the Code of Ethics requires that you either (a) fully disclose that to your client, or (b) engage the assistance of a licensee who is. Failure to do so is a violation of the Code of Ethics.
5. TRUST FUNDS: All checks received, even if not cashed, must be logged in and out of the uncashed trust fund log. If you are going to cash a tenant check, deduct your property management fee and expenses, you must account for all of that in your broker’s trust fund account.
For more information on Property Management, see CAR Legal Memos:
“Property Management Frequently Asked Questions”
“Property Managers and the Contractor’s Licensing Law”
PRACTICE TIPS:
1. Never attempt to manage a property for others without your manager or broker’s specific permission and supervision.
2. Managing properties which an agent owns does not constitute property management for purposes of license activity. Any agents who are managing their own properties must do so without any involvement from their broker. That means no MLS, no receiving rent checks at the brokerage’s office, no use of broker’s office space, equipment, e-mail or forms for the management of the agent’s own property.
3. Many brokers have policies that no agent can engage in property management at all; or without the permission of the broker; or without certain guidelines being followed; or only by designated property managers. If in doubt as to your company’s policy, check with your broker or manager.
4. Only experienced property managers should even attempt to serve notices on tenants. These notices must be filled out correctly, and served in the manner specified by statute. If done wrong, it can create real legal problems for the landlord.
5. FORMS: CAR has a “Property Management Agreement” form (form PMA on zipForms) for use when being hired by a property owner as a property manager. In addition, there is a “Property Management Addendum” form (form PMAD”) for use when making the required withholding to the California Franchise Tax Board for non-resident property owners. (See the CAR Q&A for more information on this subject.)
6. CAR provides a “Property Management Certification” program for all current or would-be property managers. For more information go to:
http://www.car.org/education/designations/pmc/
This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2016 04/27/16