Issue 58 - Property Management - December 2009
Pitfalls and Practicalities.
Further to my comments in November 2009 about the effect on Consumers of the Real Estate Agents Act 2008, it is interesting to recall that one area where there should have been some tightening up has actually been loosened somewhat. I am referring to the requirements for Real Estate Agents to have their trust accounts audited on a regular basis.
Now, as previously, those who engage in Property Management as a business, but who do not also engage in other Real Estate work (such as the sale of properties), are not required to be licensed as a Real Estate Agent, whilst those of us who also sell properties are required to be licensed.
With the old Act the requirement to be licensed came with the requirements to be audited and to employ people who have passed the necessary examinations. From the aspect of Consumer Safety, I regard these requirements as essential.
It seems a great pity then, that when the Real Estate Agents Act 2008 was written and passed into law, it did not change the situation then existing of not requiring Property Management companies to be licensed in the manner of Real Estate Agents.
For Consumers, this means that there is currently no audit requirement for the accounts of those engaged solely in Property Management. There are thus no checks that the Property Manager is maintaining proper accounting procedures in handling other peoples’ money.
The worrying part of the new Act, however, is not so much that it hasn’t required Property Management companies to be licensed, (thus simply continuing with the status quo) but also requiring that henceforth the only Trust Accounts of Real Estate Agents that are required to be audited, are those relating to the sales. Despite representations to the contrary, it was considered that the risk to consumers was too small to continue the previous practice of auditing the rent trust accounts.
Try telling that to the person who needs regular rental receipts to be able to make their loan repayments.
Apart from the above, there are other traps when engaging a property manager to manage your property. If you are contemplating using a property manager, you should seek assurance on the following:
- Do they have a specialised employee handling the accounting for the rental receipts and payments for repairs etcetera? To those not familiar with accounting, this can be a prime area for mistakes and misallocations of funds.
- Do they use up-to-date software for their accounting? Modern software is a powerful tool in Property Management, in the hands of a competent operator.
- What is the average number of properties handled by their managers? This is very important as overworked managers are never going to be able to do their best for you no matter how good they are. You would be amazed by the number of property managements handled by some in the industry.
- What arrangements do they normally make with intending tenants, to allow them to view the properties? Recently, it has come to our notice that some agencies simply hand property keys to prospective tenants and let them go through properties unsupervised. In some cases, this has resulted in scams where the ‘tenants’ take photos of the property and then use the internet to ‘let’ the properties themselves to unsuspecting tenants, pocketing both rent and bonds. Is this what you want for your investment?
- Does the firm have Professional Indemnity Insurance in place? A ‘ball-park’ figure by John Coudrey of Marsh Ltd., Insurance Brokers, estimated that only 75% of Real Estate Agents carried Professional Indemnity insurance. If an insurance premium on your rental property was overlooked and the building burnt down, wouldn’t you like to know that the management firm carried Professional Indemnity insurance?
- Are you able to access Landlord Insurance through your Property Manager? Some Managers are not able to access such insurance at reasonable rates. One Insurance company limits its cover to those properties managed by Licensed Real Estate Agents. NOTE: We so believe in Landlord Insurance, that we rebate back to the Landlord, the commission that we make by insuring for Landlord Protection.
- How good is their service, really?Ask for recent references. Ask if you are able to speak with the referees. When you ask the referees how good the service is, ask the question a second time, as in ‘But how good is their service REALLY?’. You may be surprised by the answer.
For the record, Glover Real Estate will continue to be audited; we have always carried Professional Indemnity insurance and offer Landlord Protection insurance at reasonable rates.