Real Estate

THIS SECTION IS RELEVANT ONLY TO THOSE IN THE REAL ESTATE SECTOR * (other than Strata Manager, Stock & Station, Business Brokers). If you are not primarily in a category other than Real Estate, go to the bottom of this lesson and mark it complete and move on.

What is “risk management”?

A “risk” implies a probability that an “event” is possible. For example, if it’s a wet day, and you have slippery tiles, the potential exists to slip or fall.

The risk can be defined in two parts – (1) “Cause” of the situation (i.e. rain) and (2) “impact” of the situation (i.e. possible legal suit for any resultant injury).

To properly manage a risk you need to first assess if you have any control over the “cause”. That determines the degree and actions of the “impact”. Below is a method of categorising the risk.

There are 4 stages to Risk Management. They are:

  1. Identification
  2. Quantification
  3. Response
  4. Monitoring and control

Identification

At this stage we identify and name the risks.

The best approach is a workshop with all people involved in the project to carry out the identification. Perhaps implement a brainstorming session and review the standard of risks. There are different types of risks and we need to decide on a project by project basis what to do about each type, eg sales department may be experiencing problems with keys being incorrectly tagged.

Quantification 

A risk needs to be quantified into 2 dimensions.

  1. The Consequences of the risk needs to be assessed, and
  2. The Probability of the risk occurring needs to be assessed.

For simplicity, rate each on a scale of 1-5. The higher the number, the larger the impact or probability, such as the matrix below.  Therefore, if the probability is high but the impact is low it would be a medium risk. On the other hand, if the impact is high and the probability is low it would be a high risk. A remote chance of a catastrophe warrants more attention than a high chance of a hiccup.

 Consequences – How severely could it hurt someone or cause damage?

  • Catastrophic – death or large number of serious injuries
  • Environmental – ecological disaster and huge cost
  • Major – serious injury, extensive injuries, severe environmental damage, major cost
  • Moderate – medical treatment required, contained environmental impact, high cost
  • Minor – first aid treatment required, some environmental and/or financial impact
  • Insignificant – no injuries, low financial and / or environmental impact.

 Probability / Likelihood – how likely is it to happen?

  • Almost certain – expected to occur in most circumstances
  • Likely – will probably occur in most circumstances
  • Possible – might occur at some time
  • Unlikely – could occur at some time
  • Rare – may occur only in exceptional circumstances.

Risk Response

There are also 4 things you can do about a risk. These strategies are:

  • Avoid the risk – do something to remove it, eg. use another supplier
  • Transfer the risk – make someone else responsible, eg. make your vendor or landlord responsible for a particular risk by passing the information over
  • Mitigate the risk – take action to lessen the impact or chance of the risk occurring, eg. properties hosed down when bush fires are nearby
  • Accept the risk – it might be so minor the effort to do anything is not worthwhile

A risk response plan should include the strategy and action items to address the problem. The actions should include:

  • What needs to be done
  • Who is responsible
  • When it will be completed

Firstly, let’s take a look at some of the areas prone to risk in an Agency:

Records:

  • Are they current, i.e. up to date with current legislations, changes in the Act, etc
  • Archiving of records – whose responsibility is it? where are they stored?
  • Security – is private information correctly stored or destroyed when necessary?

Employees:

  • Are their certificates / licenses current?
  • Have they completed the necessary annual education (CPD) applicable to their licence category?
  • Is their industry knowledge up to date? – e.g. changes to the Residential Tenancies Act and the Property and Stock Agents Act; additions to the Rules of Conduct; etc

Clients / Customers:

  • Are the premises they are inspecting safe to enter?
  • Is the money safe in your trust account?
  • Are they receiving correct and full information?
  • Have they received a Consumer Guide?
  • What is the personality of the client? – e.g. friendly, assertive, aggressive, objectionable?
  • Is there a history with this particular client?
  • Last appointment of the day? – safety and security of employee?

Agency:

  • Damage to reputation from untrained employees
  • Damage to reputation from unhappy customers
  • Fraudulent activities by employees
  • Financial penalties for breaches under the Act
  • Financial compensation for incorrect information (e.g. misquoted inclusions under contract).

This is one example of a number of tools that can assist with your risk assessment process. This four (4) stage approach will assist in identifying the risk profile of the situation and allow an assessment to be mad eof the likely consequences of the event impacting on business operations of the agency.

  • Consider what can go wrong
  • Determine how bad the outcome would be (Consequences)
  • Determine how likely it is to happen – Likelihood
  • Calculate the risk level


For all “sectors” listed below there are specific areas that NSW Fair Trading have identified as “of concern” for licensed agents to be aware of in their day-to-day activities. The assessment activities are related to those concerns.

Real Estate includes:

  1. residential sales
  2. residential property management
  3. commercial, retail and industrial sales
  4. commercial, retail and industrial leasing
  5. management of on-site residential complexes

1.1 Identify a primary occupancy risk for the various functions carried out by agents:

(The “primary occupancy risk” should be defined as: what is the area of greatest risk/liability to the clients with whom the individual agent deals with, in relation to the occupancy of their space – either as an owner or tenant)

1.2 List at least three (3) and no more than five (5) potential sources of risks in the property types/styles you deal with (e.g. could include: fire safety, swimming pools, loose-fill asbestos, access, and poor maintenance of a property).

1.3 What are some examples of the appropriate measure/s the agent could take to demonstrate a clear understanding of their responsibilities (as an agent) to mitigate safety risks to occupants through appropriate disclosures, maintenance, and coordinating appropriate responses to identified risks, specific to the types/style of property you deal with?

Go to the Quiz section and complete the tasks there for * Real Estate Agents (i.e. residential sales; residential leasing; commercial sales; commercial leasing; on-site residential leasing).