Property Managers Owe Fiduciary Duties to Their Clients at Minimum

“Fiduciary” is basically defined by Black’s Law Dictionary as a term derived from Roman law which means, as a noun, a person or legal entity, holding the character of a trustee, with respect to the trust and confidence involved as scrupulous good-faith and candor towards another’s affairs. A fiduciary also has duties which are described as involving good-faith, trust, special confidence, and candor toward another’s interests. Typical fiduciary duties are imposed on and include such relationships as executor, administrator, trustee, real estate agents, attorneys, and, of course, property managers. A person or company who manages money or property, i.e., the manager, for other people must exercise a standard of care in that the interests of the money or property owners are placed above and beyond those of the property manager. In some states, like California for example, a property manager is statutorily defined as an individual or entity which has the same duties as a trustee, i.e., a fiduciary.

The way I always explain it to clients, using my hands to demonstrate, is that my interests end at the top of my head (one hand at the crown of my head), but the client’s interest rise above and beyond my head and take precedent over my own (holding both of my hands above my head in a clasped position). Most people understand the gesture and comprehend that as a property manager and a lawyer my interests are much lower than those of the clients in our relationship.

Common Fiduciary Duties Owed by Property Managers

Since a property manager is a fiduciary they must act with the highest good-faith and fair dealing with respect to the owner’s asset, disclose all material information that may affect the owners decision-making with respect to that asset, and can’t in any way, shape or form act adversely to the owner’s interests. This may sound easy, but there are situations that arise that tempt even the best property managers to sometimes not act in their client’s best interests to suit their own self-interested convenience. Unfortunate as that may sound it happens regularly.

The following is a short list of some common sense duties, rights, and wrongs when a fiduciary relationship exists between a manager and an owner.

A manager should have a written agreement with their clients and may even be legally entitled to profit from services for which they provide to the owner, however, a manager may not secretly profit from this relationship. For example, a manager may charge an eight percent markup on materials and services provided by vendors to the owner’s property. This is legal and acceptable provided that the agreement between the parties is in concert with the markup. If this markup was not in the agreement then the law requires a property manager to disgorge or relinquish any and all secret profits derived from the relationship. There are so many possible examples of this, but a common one is a manager making a percentage profit on work and services provided to their clients but not disclosed; like a new roof, bathroom remodel, repairs to interior walls, etc.

A property manager is required to disclose any and all rental offers received along with documentation of those offers such that the property owner is well informed about all potential tenants. It is easy for a manager to fail to provide names of potential tenants that don’t necessarily qualify or are poor credit risks as this would involve more work for the manager.

A property manager is statutorily required to act for the sole benefit of the asset owner in matters that evolve from the relationship, whether or not those matters are seemingly insignificant or they are significantly material.

Information about a tenant whom falls behind on their rent must be immediately communicated to the asset owner. If your management company is using a software system that allows an “Owner Portal” then this information is readily available to see and anytime one has access to the internet.

If a manager receives information that a tenant has caused damage to a property the owner should be notified as soon as feasibly possible. It is easy for the manager to not disclose this information for fear of confronting the disgruntled owner or just not wanting to deal with the conflict associated with that situation.

Trust Account Duties

A trust account which holds deposits and rent monies for the benefit of the asset owner is a common ground for fiduciary duty breaches. The law precludes a manager from commingling of the client trust funds with broker or manager owned funds.

Additionally, it is a breach of fiduciary duty to make mortgage payments on broker owned properties from a trust account even if the broker quickly reimburses the account for the payments. The statutory prohibition against conducting personal business from trust accounts is strictly enforced.

Surprisingly another common example of commingling of funds occurs when the property management fee is not timely withdrawn from the trust account. Sometimes a delay of twenty-five (25) days could be considered commingling.

Trust funds must also be deposited with expediency. Some states require that deposits must be deposited by no later than the next business day.

Commingling of Trust Funds is a Serious Offense

Commingling of trust and broker funds is such a serious offense it can be grounds for revocation or suspension of a broker’s license in most states. Thus, this sole issue must be of paramount importance to a manager and property management company.

Conclusion

Managers owe fiduciary duties to their clients – this is the minimum standard owed. There are many ways to breach these duties which form the basis for the relationship between the manager and the client. It is important to hire a property manager who understands and abides by the statutory framework, understands fully what a fiduciary duty entails, and can both clearly communicate those duties and at the same time live up to them. It is important for owners to make sure they hire property managers who abide by these minimum standards.

4 Essential Qualities of a Property Manager

Nowadays, owning a rental property, anywhere on this earth, requires hiring of a professional and efficient property manager. Working with these property managers is highly beneficial in many respect but all managers do not have the same competency to understand the needs and interest of the owners. For this reason, it is necessary that property owners consider certain things before hiring a manager. There are some attributes which are a must for any property manager.

What features a property manager should essentially have?

Here is a list of elements that every property dealer will expect from the management company.

Detailed and Organized

This is one of the prime characteristics that a property manager must have. The managers can conduct every task with in-depth information and knowledge. They should have information that the tenants are making on-time payment of their rent, must support financial records, process evictions, should send communications and letters, must have a track about the leases and should pay attention to minute details like maintenance. The managers have to look after the daily operations of a property. This is a significant responsibility when it is about a large complex.

Adequate Legal Knowledge

Having proper legal knowledge is a crucial aspect of any manager. Several property laws are there in the state and locally about which the manager must have adequate knowledge. These laws can guide on how to manage rental properties. When a property owner knows that he has eminent legal experts around for his help, he certainly remains legally sound. There are many hidden clauses in property laws, which one cannot know if one does not have comprehensive knowledge about the legal matters. Therefore, managers should acquire in-depth knowledge about property law.

Commitment to Work

One achieves greater satisfaction to work when one knows that he has employed a dedicated property manager to handle his property. Not only should the managers have enough experience in the industry they are working, they should also have competent knowledge about the industry. All these will enable the owner to endow a responsible manager to look after his business. A dedicated manager can only handle things with care and efficiently.

Excellent Communication Efficiency

A property manager must have a high degree of communicating ability. One of the prime tasks of the managers is to keep the tenants happy and content, and this is only possible when the manager is able to do effective communication. Tenants can contact the manager all round the clock. Thus, the property manager is easily approachable, and the tenants must feel comfortable in discussing property matters with him. It is his communication skill that will help in increasing the number of tenants.

These are some of the qualities of a property manager from which a property owner can benefit. While contacting any management company, make sure that it has all these attributes. This will make the owner feel that his property is under expert supervision.

Real estate agencies are many in the present world. This article deals with the characteristics that a property manager in East Victoria Park or any other place should have.

ant units. 4. What do you do with the information obtained from unit inspections? This is particularly important to ask because you need to make sure that the property management company has policies in place regarding the payment of damages to units caused by tenants or their guest. It would be of no benefit at all if they just report to you that all units were inspected, if they do not not have an aggressive plan of action based on unit inspections. 5. How important is preventative maintenance to you and how is this handled by your company? Extensive and costly deterioration can occur to properties if there isn’t a preventative maintenance plan in place. Your property manager should keep a preventative maintenance log showing all items inspected and addressed as well as the signature of the maintenance supervisor acknowledging completion of all required tasks. 6. How do you handle ongoing/daily maintenance? You need to know whether one or more dedicated maintenance technicians will be assigned to your property (based on the size of the property and number of units). It is also important to know the level of engagement of the maintenance supervisor (if any) and his role in ensuring that all maintenance issues are being addressed. 7. After hours emergency handling. Have the property manager explain their process for handling after hours emergencies such as water leaks, fire or any other casualties. Ask whether there is an after hours phone number which tenants would have access to. 8. Tenant Selection Plan. You need to know if the property manager has a Tenant Selection Plan that can be customized for your property. The TSP will help define the requirements that potential tenants would have to fulfill prior to renting a unit to them. You might also be want to be involved in the development of the rental criteria to ensure that only applicant who meet your requirements are approved. Keep in mind that you as well as your property manager are required to observe and conduct business based on Fair Housing Law. Your property manager should be absolutely familiar with what terms to use and which ones avoid when advertising your vacant units and when interviewing applicants. 9. Transparency. How can I have access to review accounts payables, delinquency reports, collections, etc. You as the property owner should define the frequency and types of reports that your property manager should make available to you. 10. Property Market Analysis. Does your management team shop comparable properties to keep up to date with local occupancy rates, average rent rates, amenities offered, specials, etc.? Please be aware that not all property management companies provide this service. 11. What is your area of specialty? It is important to keep in mind that there are several specialties within the property management industry. If you own commercial property, you should probably stay away from property managers that have experience managing only multifamily or condo properties. The most common areas of specialty in property management are: Single Family, Multifamily, Condo Associations, Cooperatives, Retail, Medical, Commercial and Industrial. Management companies that specialize in the management of distressed and difficult-to-manage properties are usually capable of handling a broader spectrum of assets and engagement types, such as REO, Receiverships, and disputed assets. Retaining t Article Source: http://EzineArticles.com/8740379

Owning investment real estate is a great option for those looking to make a longterm commitment as opposed as a shortterm speculation. The management of such investment should always be trusted to professionals who are dedicated and committed to the industry and know how to deal with complex situations that are otherwise commonly ignored by inexperienced landlords.

It is of the utmost importance that property owners know how to select and interview the property management company that best seems to specialize in the kind of investment that they are looking to have managed.

If you are unsure what to ask your potential property manager before you sign a long term agreement with them, here are some questions that you can use as a guideline.

1. What kind of property management experience do you have? You need to know for how long they have managed property and whether they have enough back up from the rest of their group.

2. How many properties do you currently manage? Hiring a property manager that handles several thousand units could be somewhat risky as your property might end up lost in an ocean of other properties.

3. How often do you inspect occupied and vacant units? It is important to know the frequency of inspections in occupied units. The reasons why you need to know this information is because you need to be assured that there will be a comprehensive assessment of potential damage to occupied units that has been caused by tenants. You also need to know the frequency of inspection though vacant units to prevent any potential risk of fire or other casualties. Trust me, I have seen fires occur in vacant units.

4. What do you do with the information obtained from unit inspections? This is particularly important to ask because you need to make sure that the property management company has policies in place regarding the payment of damages to units caused by tenants or their guest. It would be of no benefit at all if they just report to you that all units were inspected, if they do not not have an aggressive plan of action based on unit inspections.

5. How important is preventative maintenance to you and how is this handled by your company? Extensive and costly deterioration can occur to properties if there isn’t a preventative maintenance plan in place. Your property manager should keep a preventative maintenance log showing all items inspected and addressed as well as the signature of the maintenance supervisor acknowledging completion of all required tasks.

6. How do you handle ongoing/daily maintenance? You need to know whether one or more dedicated maintenance technicians will be assigned to your property (based on the size of the property and number of units). It is also important to know the level of engagement of the maintenance supervisor (if any) and his role in ensuring that all maintenance issues are being addressed.

7. After hours emergency handling. Have the property manager explain their process for handling after hours emergencies such as water leaks, fire or any other casualties. Ask whether there is an after hours phone number which tenants would have access to.

8. Tenant Selection Plan. You need to know if the property manager has a Tenant Selection Plan that can be customized for your property. The TSP will help define the requirements that potential tenants would have to fulfill prior to renting a unit to them. You might also be want to be involved in the development of the rental criteria to ensure that only applicant who meet your requirements are approved. Keep in mind that you as well as your property manager are required to observe and conduct business based on Fair Housing Law. Your property manager should be absolutely familiar with what terms to use and which ones avoid when advertising your vacant units and when interviewing applicants.

9. Transparency. How can I have access to review accounts payables, delinquency reports, collections, etc. You as the property owner should define the frequency and types of reports that your property manager should make available to you.

10. Property Market Analysis. Does your management team shop comparable properties to keep up to date with local occupancy rates, average rent rates, amenities offered, specials, etc.? Please be aware that not all property management companies provide this service.

11. What is your area of specialty? It is important to keep in mind that there are several specialties within the property management industry. If you own commercial property, you should probably stay away from property managers that have experience managing only multifamily or condo properties. The most common areas of specialty in property management are: Single Family, Multifamily, Condo Associations, Cooperatives, Retail, Medical, Commercial and Industrial.

Management companies that specialize in the management of distressed and difficult-to-manage properties are usually capable of handling a broader spectrum of assets and engagement types, such as REO, Receiverships, and disputed assets.

Retaining the right property manager can enhance the value of your investment property while making your life easier as you don’t have to deal with the headaches that this activity often represents. If you have plans to expand your real estate investment portfolio it is definitely worth having a strong property management company on your side.

Triton IRES is a full service Property Management company specialized in turning around highly challenged property and sites that are difficult to manage by traditional management approach.

Our experienced real estate advisors act quickly when stabilizing an underperforming property. We identify critical issues and develop a list of priorities that must be addressed immediately. These actions halt the downward performance trend and protect the underlying value of the property.

Property Management Services – A Real Estate Investor’s Best Friend

Do you own an investment property that you’re renting out, and you’re currently handling all of the chores of being a landlord yourself?

Are you thinking about investing in rental properties, but you’re not sure if you’re up for the task of being a landlord?

If you answered yes to either of those questions, whether you are holding onto or considering investing in a single-family rental (SFR), duplex, or triplex, you should think about engaging a professional property management firm to take the work off your shoulders.

Let’s take a look at what property management is, what a professional management company handles, and how to decide not only if it’s time to hire one but also how to hire the right property management firm.

What is Property Management?

Let’s start off with getting an understanding of what a property management firm does and doesn’t do. There are several critical tasks a property manager can help you with.

Setting the right rental rate: You can always ballpark this by looking through the classifieds, but a good property management company actually conducts thorough market studies to set a rental price for your property. This makes sure you have a great balance between maximizing your monthly income and keeping a low vacancy rate.

Collecting the rent: One of the most difficult aspects of being a landlord is collecting the rent. Property management firms have efficient, tried-and-true systems that will do a great job of collecting the rent and maintaining on-time payments.

Marketing and advertising your rental unit: When vacancies occur, you want the rental unit occupied as quickly as possible. A professional property management firm has experience that helps it market your property in just the rate way to make sure someone moves in quickly.

Finding and managing tenants: The property management firm will take the work out of finding and managing tenants for you. This means screening new tenants for criminal and credit checks, collecting references, and getting the lease signed. Once the home is occupied, handling routine and emergency maintenance and inspections are part of what a professional management company will do for you.

Managing relationships with contractors and other vendors: Do you have deep-seated relationships with all of the maintenance workers, tradesmen, contractors, suppliers, and vendors needed to properly manage your rental? Probably not. But a property management firm does and can get you the best work for the best price, while handling the burden of overseeing necessary maintenance projects for you.

Keeping you in compliance with the laws Housing regulations and property laws are complicated and confusing when you’re renting and maintaining your rental property. These can include local, state, and federal regulations, along with fair housing regulations like the Americans with Disabilities Act. A property manager can keep you out of hot water by keeping your property up-to-date and in compliance with all of these regulations.

Allowing you to invest from afar: If you’ve moved to a place where investing in rental units don’t make sense, you might think that investing in SFRs or other rental properties isn’t possible. With a good property management company by your side, you won’t be so limited in your investment opportunities.

I only have one property; so why do I need a property manager?

If just reading through all of the tasks that a property manager can handle for you isn’t convincing enough, consider this: do you want to be able to go on vacation without interruption? Do you really enjoy phone calls about backed up plumbing at 3:30 in the morning?

Chances are, you want the freedom to leave town for vacation or just have uninterrupted time with family for the holidays. You don’t relish the task of dealing with emergency maintenance chores in the middle of the night, and you probably dread the thought of trying to find a good tenant when your existing ones move out.

Even if you only have a single investment property that you’re renting out, you can benefit strongly from hiring a property management service. They have decades of experience that you’d be hard-pressed to match yourself, and can ensure your property is maintained impeccably while still maximizing your profit.

Okay, I’m convinced, but how do I know who to hire?

The best way to find out about quality management companies is based on the experience of others. If you are local to your rental property, attend your regional real estate investment association meetings to get recommendations from other landlords.

You want to make sure you find out how many units the company is managing, and how many employees they have doing the work. A trained employee with the right tools and proven processes can successfully manage between 30 and 40 units, as long as they’re not also playing accountant.

When you’re interviewing different qualified property management firms, here are the questions you should get answers to:

What is the cost? Generally, the monthly fee for property management is between eight and twelve percent, plus expenses. Remember you get what you pay for, so it is important to balance the cost and services.

How well do they communicate? You want someone who uses email, but is still responsive to the telephone. If you don’t get a response in a timely fashion, it’s time to walk somewhere else.

How easily can I terminate the agreement? If things work out, what will it take to terminate your agreement? Make sure you know this up front, along with any penalties.

How experienced are they with Section 8? This can be supremely important, since Section 8 housing and tenants are great income opportunities. Make sure they have adequate experience with such properties.

If you do your research, you can readily find a reputable firm to handle your rental investments for you. This will free you up to enjoy the fruits of your investment without as much of the hassle.

Make Finding a Property Management Company Easier on Yourself by Asking the Right Questions – Part 2

This is part 2 of a 4 part series where we have outlined important questions to ask a property management company before hiring them.

Series 1 Companies Credentials
Series 2 Property Management Services
Series 3 Property Management Fees
Series 4 Tenant Screening Process

Property management companies come in all sizes, capabilities and expertise. Just because one works for one investor does not necessarily mean they will work for you. Below we have outlined some important questions to ask a company during your initial interview process regarding services they provide. Their answers to these questions will give insight into their business capabilities and can provide you with an understanding of the type of services they offer which are important to you.

Series 2 – Property Management Services

Properties they manage – Property management companies are as different as car dealerships are to each other. For example, a Mercedes dealership will have the best inventory and the most knowledge of the latest selection of new Mercedes. You could visit the Toyota dealership in your neighborhood, but chances are you will not find what you are looking for. Of course, they would love your business and will try and talk you into why a Toyota is a better fit for you than a Mercedes.

Same with a property manager, they are not created equal when it comes down to their property portfolios. You need to ask what types of property they manage and make sure your type of property is one they manage. If you own a single family home, a company that manages mostly large apartment buildings or commercial property would not be a good match. In this case, your best match would be a company that has a minimum 50% or greater of single family homes in their rental pool.

Some companies manage all types of investment properties…single family homes, apartments, commercial and community associations, but chances are they hold a specialty in one or two areas.

Inspections – A thorough property inspection should never be overlooked by a property management company. A property inspection needs to be conducted upon tenant move-in and at move-out. A property inspection can range from drive-bys, a walk-through or a video inspection. If disagreements arise between tenant and manager as to items missing or damaged, actual documentation from the move-in inspection and pictures of before and after hold validity versus a verbal agreement.

A video inspection of the interior as well as the exterior of property is the best option. Still pictures are good, but sometimes do not capture all areas of property. The video will not only capture all areas, but is easily interpreted and validated as the subject property. A signed checklist at move-in from tenant validates that tenant concurs with the inspection findings.

Maintenance – When it comes time to performing maintenance or repair work to their rental properties some property management companies have their own in-house maintenance personnel. These are usually employees of the company and are paid a salary through the company. The costs or hourly rate of any maintenance or repair work that is required will be dictated by the management company itself.

On the other hand, the management company may decide to outsource all or some maintenance work to outside vendors. These vendors could range from a handyman, specialized tradesman such as a plumber or a large facility that performs all types of maintenance work.

There are pros and cons to both and I do not advocate one over the other but will outline a few points of interest:

In-house Maintenance

Pros:
– More readily available, since they work within the management company
– Direct communication with management company and their policies
– More intimate with property…they are the “one” contact and know the history of your property

Cons:
– May be more of a “jack of all trades” versus being specialized in a certain field and having the appropriate licenses
– May not be as determined to perform or finish maintenance work in a timely manner as he/she is not being paid based on the job. Whether he/she finishes in 2 hours or 8 hours, its all the same.
– If in-house maintenance crew is not available, either the repair work waits or the company will need to search for a outside vendor on short notice

Outsourcing Maintenance

Pros:
– This allows the property management company the luxury of competitive bidding among vendors, which could equate to lower costs
– Vendors will be eager to sign contracts with a property management company that can bring stable business to them, and as a result will most likely perform quality work in a timely manner
– Most vendors will be specialized tradesman carrying all required licenses, insurance and being bonded

Cons:
– Some property management companies will add a surcharge or mark-up above the actual cost of any repair work to cover their time in acquiring these bids.
– If work was not completed properly, it may be difficult to get the vendor back on the job.

Another option is coordinating all maintenance work yourself. This may work for you if you have reliable contractors you have work with and are dependable. You can probably save yourself some money but this will involve a bit of your time on your part.

Accounting – Most full service property management company will offer as a customary service some type of accounting procedure. This usually comes in the form of a monthly paper statement itemizing all income and expenses funneled through the management company on your property for that particular month. It will show rental income and any expenses such as management fees, repair costs, lawn care service, advertising charges, lease renewal fees and possibly utility charges. The monies owed the owner also referred to as the net amount should be clearly spelled out on this statement. The monthly statements are usually mailed every month to the owner along with a deposit check for the net amount. You should also be provided with a end year statement along with a 1099 for tax purposes.

With the advancement of online technology many management companies are now offering their owners the ability to view and print their monthly statements via the company’s’ website or online portal. These portals have the ability to store other documents such as the management contract, vendor invoices, pictures of property, inspection reports etc…all at your fingertips.

Another great advantage of working with a savvy property management company is their ability to setup automatic deposit of your monthly checks. No more waiting for the postal service, your deposit checks can be deposited directly into your bank account. Chances are they will also have the ability to setup automatic debit of tenants rent from either a checking account or credit card.

Coming soon: Part 3 of 4 “Make finding a property management company easier on yourself by asking the right questions – Property Management Fees”

Karen McDaniel
Principal/CEO
Property Management Profile LLC

Property Management Profile offers the most up-to-date listing of full-service property management companies nationwide. We have become a wealth of information and resource for the first-time landlord as well as the seasoned investors. We should know what we’re talking about, as owner and creator of Property Management Profile, Karen McDaniel, has owned and managed many of her own properties. Today, all are managed by professional property management companies, so she now has more time to continue her work educating and helping others make better choices when it comes to finding a qualified property management company.