Bruce Zipf, President and Chief Executive Officer of NRT L.L.C., which operates Realogy’s real estate brokerages including Sotheby’s International Realty Group and the Corcoran Group, announced that they are forming a national residential management division. “This is the first of several adjacent growth initiatives underway to complement NRT’s residential real estate brokerage model and enhance overall profitability. We are going to leverage our presence in 40 of the top 100 U.S. markets.”
What this means for the Hamptons and North Fork real estate market remains to be seen. But just what is property management with respect to single family homes? Well, that depends. Under New York Law, if a property manager limits its service to making sure that the grass is mowed, the hedges trimmed, the snow plowed and repairs to the property be performed, either for a vacant or occupied property, a real estate license is not required. If it performs other activities, such as renting the property and collecting rents, then a real estate broker’s license is required.
It is not uncommon for real estate agents, who wish to develop or maintain good relations with absentee owners whose properties are listed with them for sale or rental, to provide services which may be purely custodial. Some may also provide similar services when the property is being occupied they introduced to the landlord.
At a recent “Risk Management and License Law Forum” sponsored by the National Association of Realtors, Philadelphia attorneys, Glen Kimball and Thomas Gregory discussed the three broad categories of risks to real estate agents who engage in these activities: potential property damage claims by the seller; potential personal injury claims by buyers and other agents; potential disclosure-related claims.
“Before you say yes to becoming a de facto property manager, be sure you know what your personal limits are and how much responsibility you can take on,” said Kimball.
Gregory warned that existing home owner’s insurance policies may not include real estate agents as insured parties if a property is vacant. You have to think about how to keep yourself blameless for things that aren’t your fault.”
A misconception among many brokers is that the performance of these activities does not in any way create a property management agency relationship with property owners. The truth is, is doesn’t require a formal property management agreement. As Kimball and Gregory have said, these performance or promise to perform them creates a de facto agreement.
Real estate brokerage is a highly competitive business, and service and cooperation are essential parts of doing business, but there are risks involved with costly consequences.
Property management can give a real estate brokerage firm a competitive edge over the competition, as well as an additional income stream. NRT’s decision is evidence of that. But it should be done with prudence and protection from liability and perhaps, more serious consequences.
Many real estate brokers live by the law of probabilities, what are the chances that something will go wrong, as opposed to “Murphy’s Law,” what can go wrong will go wrong.