Five Things Every Rental Agent Has to Monitor Obsessively

Five Things Every Rental Agent Has to Monitor Obsessively

BY EDITORIAL

Johette Smuts, Head of Data and Analytics at PayProp, says that one of the biggest responsibilities of estate agents today is the entrustment of clients’ funds and assets. “Managing a rental book means that an agency is taking responsibility for the financial and physical management of a landlord’s asset – a property.”

As the largest processor of residential rental transactions in South Africa, PayProp says that the industry is often characterised by an obsession with deal flow and growth – which means that other important tasks might be overlooked once in a while. Smuts offers a few reminders on the administrative tasks that are vital to ensure the safe management of trust funds and rental portfolios:

Reconcile damage deposits down to tenant level
Too often when we ask agencies how they keep track of their deposits, the answer is that they check the bank balance every now and then to make sure the money is still there.  This strategy is possibly worse than not checking at all, because it gives the agency false confidence in the result.  Agencies need to, in our view, be able to reconcile the total deposit amount that’s actually in the bank back to each individual tenant.  In this way it is easy to spot tenants who do not have deposits or cases where the deposit is vastly smaller than the rental amount.   Often, deposits are used incorrectly to fund rental shortfalls or to pay for some maintenance during the lease – but lax administration means that these funds are never replenished.  Just looking at a bank balance to confirm that it is vaguely the same as last month will not show these anomalies.

Compare arrears, invoice and deposit values weekly
Arrears collection is possibly the worst part of being a rental agent.  Added to this, if tenants are evicted, it often happens that there isn’t adequate funds left to pay for the damages and outstanding rental. Smuts says that selecting better tenants is the number one way to deal with this problem before it arrives. The PayProp Tenant Assessment Report combines rental payment data with credit payment data to offer a superior tenant payment profiling metric that is much better at identifying potential bad tenants than a normal credit score. Should the tenant already be in place, then check tenants in arrears against their next rental invoice value and the value of the deposit held for the tenant.  In this way it is easy to spot high risk tenants quickly – which would be the ones with the combination of high arrears, high upcoming rental invoices and low deposit values.  These are the tenant collections to prioritise immediately.

Confirmation of communication channel
While PayProp makes it easy for agents to see if tenants and owners are being communicated to via SMS or e-mail, agencies utilising more manual systems should do a regular check to ensure that all tenants and owners are being communicated to.  If your tenant does not receive a statement, how do they know how much to pay?  Conversely, if your owner does not receive a statement, how do they know that you are doing a great job?  Checking monthly that you have e-mail addresses for all parties is a first step.  The second is to check your mail log to see if you have sent statements and invoices to everyone, and the third and final check is to see if you have received any mail ‘bounces’ – and to obtain updated details accordingly.

Monitoring debit and credit notes
Mistakes happen and debit and credit notes are easy ways of correcting tenant balances when it is needed.  Too often credit notes are passed without adequate reasons being given.  Descriptions such as ‘deposit refund’ or ‘balance correction’ are all too common – and essentially do not explain why a tenant now owes less money.  Our view is that principals should review each credit note thoroughly and fully understand the reason for it having to be passed.  Too many credit notes on too many properties may mean that your administrators need a bit more training on the system that you use.

Monthly reconciliation balances
It is a legal obligation for estate agencies to reconcile their trust accounts each month.  This means that the accounting trial balance has to be compared to the actual bank balance.  If the two are not exactly the same, the onus rests on the agency to find the reason for the difference and make the necessary corrections.  It is not good enough for an agency to do this monthly via a quick visual check.  It is vital that the actual trial balance is stored with the bank balance and that the reconciliation is confirmed in writing – otherwise the EAAB has no way of knowing if the reconciliation has been properly done.  Apart from the regulatory obligation, it also makes good business sense to do a check each month on trust account balances.

Fortunately, technology is making the execution of the above tasks a lot easier.  Systems automatically reconcile accounts and provide live feeds to banking data in order for agencies to know exactly what has occurred and when, in real time.  

Automated or not, the obligation of checking that the trust account is being run properly remains the responsibility of the agency principal.

Source: www.payprop.com

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