10 most common questions asked about risk for property managers
Here are the ten most common questions asked about risk when working in property management in real estate. Not to be taken lightly, risk is a serious element of property management.
10 most common questions about risk for property managers
- What is risk and how is it measured?
- What does “duty of care” mean in an agency?
- What types of risk can renters (tenants) and rental providers (landlords) be exposed to?
- What risks are associated with property management?
- What sources of information can help to identify risks that affect the agency?
- What are some causes of risk and potential consequences for a real estate agency?
- What is the four-step risk process?
- What are the categories of risk for an agency?
- How does the agency’s policy and procedures help reduce risks?
- What are some strategies for monitoring the risk in an agency?
What is risk and how is it measured?
“Risk is the probability or threat of damage, injury, liability, loss or any other negative occurrence that is caused by external or internal vulnerabilities, and that may be avoided through preemptive action.”
Source: Business Dictionary (online), accessed 25 July 2019.
Risk is measured by identifying the degree or likelihood of the event (risk) occurring and then measuring the consequences, the result of the negative event if it does occur.
What does “duty of care” mean in an agency?
Duty of care in an agency means being responsible for the health, safety, and well-being of employees (including management) while conducting work activities. This includes working in the office and out of the office at clients’ properties.
What types of risk can renters (tenants) and rental providers (landlords) be exposed to?
Types of risks renters (tenants) can be exposed to include inefficient property management processes, legislative changes, and breach of confidentiality.
Types of risks rental providers (landlords) can be exposed to include legislative changes, mismanaging rental property, and ineffective financial management of rental payments.
What risks are associated with property management?
Some risks associated with property management include:
- operational risks, for example, inappropriate procedures followed for entering the rental premises
- social risks, for example, unsafe work practices implemented during an open inspection
- client risks, for example, failure to protect the client’s rental property from damage caused by renters (tenants).
What sources of information can help to identify risks that affect the agency?
There are many sources of information which can help to identify risks associated with property management, including:
- Relevant legislation, including Acts and regulations, for example:
- Property Occupations Act 2014 (QLD)
- Property Occupations Regulations 2014 (QLD)
- Residential Tenancies and Rooming Accommodation Act 2008 (QLD)
- Residential Tenancies and Rooming Accommodation Regulation 2009 (QLD)
- Forms and documents used to process rental tenancies
- Industry professional development training material
- Insurance policies
- Existing risk management documents being used in the agency
- Case studies relating to real estate agencies and penalties, breaches, etc. available from the relevant state/territories Civil and Administrative tribunal, for example, NCAT (NSW Civil & Administrative Tribunal).
What are some causes of risk and potential consequences for a real estate agency?
Risk can be created from a multitude of situations and circumstances, including:
Incompetent or untrained staff do not perform their job properly, for example, failing to bank trust money in the required time frame. The possible consequences include the principal being fined, staff being retrained, allocating more supervision to property management staff to provide on-the-job training.
A client (rental provider) lies or fails to disclose important information relating to the rental property, which could impact whether renters would want to live in the rental property. The renter may find out about the undisclosed information after moving in. The renter may want to break the lease early as a result and decide to take the rental provider and the agency to court for compensation and to ensure they are not penalised for breaking the lease early.
Recent legislation changes relating to residential tenancies have been updated in the agency’s procedures manual, but staff training has not been implemented, so property management staff implement old legislation. This can result in the agency being fined if found guilty of not implementing the procedures and may also result in compensation to the rental provider or the renters.
A break and entry occurs at the office, and duplicate rental property keys were stolen from a desk drawer that wasn’t locked. Consequences for this situation could be very costly, as all locks for the rental properties may need to be replaced. Also, the agency could be fined or have to pay further compensation to rental providers. Office procedures would need to be changed with the keys stored in a more secure location. The reputation of the agency and its ability to professional manage rental properties may be damaged.
What is the four-step risk process?
The four-step risk process is:
- Identify risks
- Evaluate and analyse risks
- Maintain a risk register
- Monitor and manage risk.
What are the categories of risk for an agency?
The categories of risk relevant to real estate include:
- Operational risks
- Financial risks
- Social risks
- Competitive risks
- Client risks.
How does the agency’s policy and procedures help reduce risks?
The agency’s policy and procedures manual is written to ensure the correct implementation of relevant legislation and to reduce identified risks. When staff undertake the required tasks and processes efficiently and effectively, according to the policy and procedures manual, they are effectively implementing the legislation in a reduced risk environment.
It is critical that the manual is updated and reviewed regularly especially when legislation changes, new staff are employed and being trained, or after a risk has occurred or a new risk is identified. Policies and procedures are only effective if all staff members are adhering to them. When followed correctly, they assist in avoiding and reducing risks from occurring.
What are some strategies for monitoring the risk in an agency?
An agency can implement many strategies to monitor the risk environment in relation to property management, including:
- Conducting staff meetings to discuss and clarify policies and procedures. For example, open house inspections, signing new tenancies, organising repairs, dealing with late rental payments, and early termination of tenancies. During staff meetings, it is essential staff are provided with opportunities to share events/situations where they experienced a possible risk and to discuss the strategies used in the situation. This may lead to a review of risk management procedures and documents.
- Staff performance reviews provide an opportunity for staff members to privately report and discuss possible risks and their way of dealing with risks. Staff can also suggest improvements based on their experiences.
- Customer feedback and complaints can assist in identifying potential risks. Therefore they should be read and processed regularly to ensure any identified risks are identified and strategies implemented to reduce their likelihood.
- The office manager should thoroughly review and evaluate all risk management documents, processes, and procedures at least annually, immediately after the announcement of legislation changes, or a new risk is identified.
- The office manager should regularly review and evaluate business reports and rental data to identify the effectiveness of managing risks associated with property management.
Resources for property managers
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