Property Management: The Worst Mistakes You Can Make

Property Management Mistakes

Over the last year, the Ohio Real Estate Commission has seen a pattern of certain types of cases that result in the discipline of a real estate licensee’s license.  A review of these property management cases and associated conduct can aid licensees in being sure they are steering clear of those activities that are seeing increased enforcement.

With the housing crisis about a decade ago, many homeowners had to move to rental housing.  The real estate market continues to sustain a healthy growth in rental housing.  Of course, with rental housing comes the need for property management.  This is a particularized area of practice that many licensees offer to clients as a way to supplement their traditional list/sell practice.  Unfortunately, some licensees are under the false impression that they can run their property management practice separately from the brokerage.  For example, you set up and name your property management company Rose Rentals, Inc.  You do this for liability purposes, so angry tenants cannot sue you personally as the manager.  You are also licensed with Market Realty for your list/sell practice.  Unbeknownst to many, this structure violates license law and could subject your license, and that of your broker/manager to disciplinary sanctions.

The most common charges?  Acting like a broker without a broker license and receiving money outside your brokerage.  Against your broker/manager?  Suborning unlicensed activity.

Only licensed real estate brokerages are permitted to manage property.  Thus, if you want to create a property management practice, it can only be done with your brokerage as the property manager.  Thus, in the example above, Market Realty would be the property manager and appear on all management and rental agreements.  Any payments you receive as part of the property management services have to be deposited either in the brokerage’s operating account (if fees or commissions) or the brokerage’s trust account (of security deposits or rents).  Last any advertising and marketing must be done in the brokerage’s name.

The other area were we so an uptick in cases before the Commission is unlicensed activity, primarily in the area of property management.  For example, you are not licensed and own a number of single-family homes that you lease.   A friend is aware of your successes in managing your own properties and asks you to manage their rental homes.  You agree, for a nominal monthly fee.  Many property owners that manage for another do not realize that managing 3rd party property is activity that requires a real estate license.

The consequences?  The commission can impose a civil penalty up to $1000 per day for the total number of days a violation continues or occurs.  For some, the financial consequences can be significant.

The last area relates to mismanagement or misappropriation of funds.  These cases deal with a property manager’s failure to maintain the condition of the property, occupancy (letting a tenant remain without paying rent) or provide accounting to the owner.  Complaints often arise from owners that are served with building code violations, have tenants that escrow rents or are sued by a tenant.  Communication with both owner clients and tenants is the first line of defense in these types of cases.  Inattention to even the smallest issues can be cause for concern.  The consequences to your license can vary depending on the degree of the offense.

If you either practice in property management or think that it may be an area to expand your practice, make sure you seek out education to get up to speed on this different area of real estate.  Also networking with a professional in this practice area can be invaluable in helping you to best serve your clients while staying out of hot water with the Commission.