Four or five years ago, when the Idaho Real Estate Commission (IREC) came to Tony Drost, President of First Rate Property Management, looking for support in licensing of property managers, Tony was all for it and offered any assistance that he could provide. But based on a recent Idaho Business Review article, Tony now seems to have a little different opinion. What changed? "I was all for it," says Tony, and when he learned that they were forming a task force, he reached out and offered to volunteer. Tony was not selected and he did not participate in the task force as this article says, but fortunately, several of our fellow colleagues were and they kept us updated. It was what the members of the task force were reporting back that made Tony start thinking that perhaps a real estate license is not the best way to go. Tony still believes that something should be done, but he now thinks that perhaps the real estate commission is not the right entity to govern. Below are some of the arguments that Tony heard as the task force considered real estate licensing.
PM is different
Most states require property managers to be licensed real estate agents and many of these property managers don't believe the real estate commission is the best choice to oversee them. Why? Because the real estate departments across the nation are sales oriented. Most if not all of the required continued education is oriented for real estate sales, not rental property management. When they take the state and national tests, a majority of the test content is based on sales and not rentals. Many of these property managers don't want to do any sales -- they just want to do property management.
Other states have recognized this problem, but they had already put real estate and property management under one roof. So states like Arizona and Nevada both have added a separate property management license that offers requirements, networking and education just for property management, as it is much different from real estate sales.
The other concern that came up about property management being under real estate licensing is that that the National Association of Realtors (NAR) doesn't really support their property management issues. NAR has a property management leg, which is the Institute of Real Estate Management, which focuses on commercial property management, not residential. Property management for commercial properties and residential property managers differs and it sounds as though the task force was trying to find one way to do things, and the commercial and residential property managers could not agree.
Public Protection
Everyone agreed that protecting the public from bad people is good, but they didn't agree that licensing would actually provide that protection. As stated before, most states require licensing of property managers under the department of real estate, yet these states still see the same issues as states that don't.
Costs will go up
"I liked the idea of having a broker overseeing the company," said Tony, who is already a licensed real estate broker. But according to some within the task force, there was talk about requiring many of the positions within a company to be licensed. States that require real estate licensing tend to manage properties with a single property manager. That person is responsible for his or her clients' leasing, maintenance and accounting needs. It's a lot like how cars were built before the production line: a single individual installed the motor, painted the body and mounted the wheels. FRPM is structured much like a modern production line: we have people performing jobs based on their speciality. They can become very good at the one thing.
Because Idaho property managers are not required to be licensed real estate agents, it is very uncommon to see leasing commissions, which are the norm in states that do require licensing under the real estate commission. Leasing commissions vary from market to market, but they can be as much as a full month's rent on a new lease and half a month's rent on a renewal. Those are costs that most residential property investors have not had to pay. That's significant, and what type of impact will that have on Idaho investors? Will they raise rents to recover the added expense? Or will they simply choose to invest elsewhere?
Tony does say that the quote within the article about Boise having a lot of competition is true. "It has kept management fees very low in comparison to other states."
Government doesn't belong in business
Some of the examples that were given -- where the government got involved and made a process more complicated and increased costs -- were good examples of this, but we are deciding to stay away from commenting on the examples. We can assume that everyone reading this can think of some good examples on their own.
Other concerns involve how far government will take the laws in restricting fees. California has taken it so far that it is very difficult to evict tenants, even for non-payment of rent. In Seattle, a property manager is in violation of the law if they collect rent from a tenant and do not remove the property manager's management fee that very moment. The task force discuss what fees can and cannot be charged and the limits. Property managers from out of the state cite these types of restrictions as instances of government taking things too far. Limiting the amount that they can charge in late fees, and how they can apply rents, is crippling the property manager's and landlord's ability to discourage lease violations.
In summary, First Rate Property Management does believe something could be done to improve property management in Idaho, but putting it under the real estate commission no longer seems to be the right place for the solution. In the meantime, Tony recommends that Idaho residential investors only hire property managers that have professional designations. Sure, hiring someone affiliated with the National Association of Residential Property Managers (NARPM) is a good first step, but unfortunately some join just to be able to put the logo on their marketing materials. So, look for dedication in a property manager and one who is educated and experienced by having attained professional designations such as: Residential Management Professional, Master Property Manager and Certified Maintenance Coordinator. But the granddaddy of them all is the company certification of being a Certified Residential Management Company. I guarantee, that almost any issues that the realtors were concerned about is addressed in the requirements for this designation.