Podcast
Questions and Answers
Match the type of property ownership with its characteristic:
Match the type of property ownership with its characteristic:
Sole proprietorship = Most common form of business entity Business syndicate = Group of investors pooling capital Corporation = Ownership through stock shares Limited liability company (LLC) = Protects personal assets from business debts
Match the type of business with its feature:
Match the type of business with its feature:
Sole proprietorship = Unlimited liability Business syndicate = Common types include LLC and trusts Corporation = Dividends distributed to shareholders Limited partnership = Some partners have limited liability
Match the term with its definition:
Match the term with its definition:
Unlimited liability = Owner's personal liability for business debts Syndicator = Organizer of an investment syndicate Articles of incorporation = Document establishing a corporation Closely-held corporation = Company with few shareholders
Match the advantage or disadvantage with the property ownership type:
Match the advantage or disadvantage with the property ownership type:
Match the following business types with their liability characteristics:
Match the following business types with their liability characteristics:
Match the following terms with their definitions:
Match the following terms with their definitions:
Match the following fiduciary duties with their descriptions:
Match the following fiduciary duties with their descriptions:
Match the following terms with their corresponding roles:
Match the following terms with their corresponding roles:
Match the following responsibilities with their applicable roles:
Match the following responsibilities with their applicable roles:
Match the following types of agents with their characteristics:
Match the following types of agents with their characteristics:
Flashcards
Sole Proprietorship
Sole Proprietorship
A business entity solely owned by one person. It offers a simple and cost-effective way to set up a business.
Unlimited Liability
Unlimited Liability
When a business owner is personally responsible for all the business's debts and obligations, even if it exceeds their personal assets.
Business Syndicate
Business Syndicate
A group of investors who combine their capital to invest in a property. They usually establish a business entity to hold the title.
Corporation
Corporation
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Closely-Held Corporation
Closely-Held Corporation
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Special Agent
Special Agent
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Fiduciary
Fiduciary
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Independent Contractor
Independent Contractor
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Employee
Employee
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Trustee
Trustee
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Study Notes
Learning Objectives
- Students will be able to contrast ownership, liability, and management characteristics of business entities employing a property manager
- Students will be able to explain the agency relationship between a property manager and client, and list fiduciary duties
- Students will be able to distinguish between independent contractors and employees
- Students will be able to explain the steps involved in developing a management proposal
- Students will be able to describe property manager's responsibilities and property owner's obligations in a property management agreement
- Students will be able to discuss manager's obligations in establishing and maintaining a system for client records and reports
- Students will be able to analyze what happens when a management agreement is terminated naturally or prematurely by a party
Suggested Lesson Plan
- Students should review Exercise 3.1 and the previous chapter, "The Economics of Real Estate Investment"
- Students should receive an overview of Chapter 3, "Working with Management Clients," and a review of chapter learning objectives
Types of Property Owners
- Sole Proprietorship: Owned by one individual, easy to form. Advantages: low administrative and legal costs, complete control. Disadvantages: limited resources, unlimited liability.
- General Partnerships: Two or more owners. Advantages: Relatively easy to set up. Disadvantages: unlimited liability
- Corporations: An entity separate from its owners. Advantages: limited liability. Disadvantages: double taxation, more complex to set up.
- Limited Partnerships: Two or more partners. General partners actively participate, limited partners have limited liabilities.
- Limited Liability Companies (LLCs): Combines advantages of corporations and general partnerships, with limited liability and relative ease of formation.
- Trusts: Managed by trustees, for the benefit of beneficiaries. One or more owners.
- Joint Ventures: Temporary business arrangements for a specific project. May be similar to partnerships.
The Legal Relationship Between Manager and Client
- Agency relationship: Exists when one person authorizes another to represent him in dealings.
- Employment status: The way the property manager is employed (e.g., contractor, employee).
- Trustee: Holds legal title to property, responsible for management on behalf of beneficiaries.
Key Concepts
- Fiduciary Duty: Duty of utmost good faith, loyalty, and confidentiality toward the principal.
- Principal: The party who authorizes the agent.
- Agent: The party who acts on behalf of the principal.
- Third Party; Not involved in agency relationship but may deal with one of the parties
Working with a New Client
- Developing a Management Proposal
- Identifying Client Goals
- Evaluating the Property
- Preparing a Management Proposal
Management Agreement
- Contract between property owner and manager. Defines the working relationship. Contains terms and conditions.
- Includes manager compensation, responsibilities, and owner obligations
- Includes a definite termination date
- Discusses what occurs if management agreement expires or terminates.
Communicating with the Client
- Reports; Required by agreement, frequency depends on client's involvement.
- Keeping in touch; via email, phone, or in-person meetings.
- Consultation and Decision Making; involving client on non-routine decisions
Terminating a Manager-Client Relationship
- Handover process
- Returning keys.
- Transfer of records and financial accounts.
- Addressing potential damages or breaches.
- Contractual agreements defining expiration or termination.
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