Learning Objectives

• Explain the property manager’s role as the owner’s agent and distinguish authority from ownership.
• Analyze the essential provisions of a management agreement.
• Build operating systems for budgeting, rent collection, accounting, maintenance, inspections, vendor control, and reporting.
• Apply fair-housing, privacy, safety, insurance, and risk-management principles throughout the tenancy cycle.
• Recognize the difference between routine management decisions and matters requiring the owner, managing broker, attorney, accountant, insurer, or other specialist.
• Separate national property-management principles from Indiana requirements awaiting current-authority verification.

Key Vocabulary

Term	Definition
Property Management Agreement	Contract defining the manager’s authority, duties, compensation, reporting obligations, and relationship with the owner.
Operating Budget	Plan of expected income and ordinary operating expenses for a stated period.
Capital Expenditure	Cost for a major improvement, replacement, or asset with benefit extending beyond routine operations.
Preventive Maintenance	Scheduled work intended to reduce failures, preserve value, and improve safety.
Rent Roll	Report listing units or spaces, occupants, lease terms, rents, balances, and related tenancy information.
Security Deposit Ledger	Accounting record showing deposit receipt, holding, transfer, deductions, and disposition.
Trust Funds	Money held for another party and subject to fiduciary, statutory, regulatory, and contractual controls.
Commingling	Improper mixing of client or tenant funds with personal or operating funds.
Conversion	Unauthorized use or control of another person’s money or property.
Vacancy Rate	Percentage of available units or space unoccupied during a period.
Effective Gross Income	Potential income adjusted for vacancy and collection loss, plus qualifying other income.
Net Operating Income	Effective gross income minus ordinary operating expenses, before debt service and income taxes.
Variance	Difference between budgeted and actual financial performance.
Reasonable Accommodation	Necessary change to a rule, policy, practice, or service for a person with a disability, subject to governing fair-housing standards.
Reasonable Modification	Physical change to housing needed for disability-related use and enjoyment, governed by applicable law.

Chapter Opening

Property management is asset stewardship performed through agency. An owner may hire a manager to market vacancies, screen applicants, sign authorized documents, collect money, coordinate repairs, enforce leases, keep records, and report results. The manager does not become the owner and does not receive unlimited discretion. Every action must fit the management agreement, the lease, the law, the budget, and the manager’s professional authority.

Strong management connects two goals that sometimes feel in conflict: protecting the owner’s investment and providing lawful, safe, consistent service to residents. Weak systems create avoidable vacancies, deferred maintenance, accounting errors, fair-housing exposure, and damaged relationships. Professional systems make decisions repeatable, documented, and reviewable.

Core Lesson

1. Property Management Is an Agency Relationship

The owner is the principal and the property manager acts as agent within granted authority. The manager ordinarily owes duties associated with loyalty, obedience to lawful instructions, reasonable care, accounting, disclosure, and confidentiality. The exact duties come from the management contract, licensing law, landlord–tenant law, agency law, and the facts.

Obedience never requires an illegal act. If an owner orders discriminatory screening, an unlawful lockout, concealment of a dangerous condition, misuse of a deposit, or falsification of records, the manager must refuse and escalate. An instruction outside the manager’s authority should be documented and referred for proper approval.

2. The Management Agreement Controls Authority

A complete agreement identifies the parties and property, establishes the term, and states exactly what the manager may do. It should address leasing authority, rent collection, deposits, repair limits, emergency authority, vendors, insurance, reporting, compensation, records, owner reserves, termination, indemnity, and dispute procedures.

Agreement provision	Question it answers	Operational risk if unclear
Scope of authority	May the manager lease, renew, settle, or begin legal action?	Unauthorized commitments
Spending limit	What work requires owner approval?	Delay or overspending
Emergency authority	May the manager act immediately to protect life or property?	Unsafe delay
Compensation	How are management, leasing, renewal, project, and termination fees earned?	Fee disputes
Funds and records	Where are funds held, who reconciles, and who owns the records?	Accounting and custody failures
Termination	How does authority end and how are files, keys, funds, and notices transferred?	Abandoned obligations

3. A Management Plan Converts Goals Into Operations

The manager should understand the owner’s objectives: current cash flow, long-term appreciation, stabilization, renovation, sale preparation, resident retention, or another lawful goal. The property’s market, condition, financing, lease profile, staffing, insurance, and legal constraints shape the plan.

A useful plan establishes rent strategy, occupancy goals, service standards, preventive-maintenance schedules, capital priorities, reserve targets, collection procedures, reporting frequency, and decision thresholds. Goals should be measurable. “Improve operations” is vague; “reduce unresolved work orders older than seven days while documenting all access attempts” can be managed and reviewed.

4. Budgeting and Financial Performance

The operating budget estimates rental and other income, vacancy and collection loss, payroll, utilities, repairs, contracts, insurance, taxes, administration, and other ordinary expenses. Capital expenditures are tracked separately because replacing a roof or major system is not the same as routine repair.

A variance report compares actual results with the approved budget. A favorable income variance or unfavorable expense variance should be explained rather than merely reported. Timing, vacancy, delinquency, rate changes, one-time repairs, and coding errors may all affect the numbers.

5. Handling Rents, Deposits, and Other Funds

Managers may receive rent, application charges, deposits, reimbursements, owner contributions, and vendor refunds. Each receipt must be identified, recorded, deposited, and disbursed according to controlling requirements. Client and tenant funds must not be treated as the manager’s money.

Core controls include separation of funds when required, individual ledgers, numbered receipts or traceable electronic records, documented authority for disbursement, bank reconciliation, review of outstanding items, restricted access, and prompt investigation of differences. Commingling mixes protected funds with personal or operating money. Conversion is unauthorized use and is more serious than a bookkeeping mistake.

6. Leasing, Screening, and Resident Selection

Management marketing must be accurate and nondiscriminatory. Written screening criteria should relate to legitimate tenancy risks and be applied consistently. Criteria may address verified income, rental history, credit-related information, occupancy, and lawful background considerations, but federal, state, and local rules affect what may be requested, considered, disclosed, or used.

Managers should document the application sequence, required information, decision, notices, and accommodation process. A neutral-looking rule can create risk if it has an unlawful discriminatory effect or is applied selectively. Disability-related requests require individualized evaluation rather than automatic application of a pet, parking, communication, or occupancy rule.

7. Rent Collection and Delinquency

A consistent collection policy states due dates, grace provisions if any, payment methods, late charges, returned-payment handling, notices, payment-plan authority, and escalation. The ledger must show charges, receipts, reversals, credits, and balance clearly.

Managers should not threaten remedies they cannot lawfully use, accept partial payments without understanding the legal effect, or make side agreements outside their authority. Delinquency communication must be professional, private, and documented. Legal notices and eviction steps require current forms, timing, service, and review.

8. Maintenance Systems and Duty of Care

Maintenance protects health, safety, value, income, and resident trust. Requests should be triaged by risk rather than handled only in arrival order. Fire, gas, electrical, structural, water intrusion, security, loss of essential service, and accessibility issues may require immediate escalation. Routine cosmetic work can follow the normal queue.

Preventive maintenance includes scheduled inspection and service of roofs, drainage, HVAC, alarms, extinguishers, elevators where present, common areas, plumbing, electrical systems, and other building components. Corrective maintenance repairs a known problem. Capital planning anticipates major replacements based on condition, useful life, cost, and operational impact.

1. Receive and time-stamp the request.
2. Assess safety, habitability, property-damage, and legal risk.
3. Issue the work order to an authorized, qualified vendor or employee.
4. Provide lawful entry notice or document the emergency basis.
5. Record labor, materials, photographs, communication, and completion.
6. Confirm the problem was resolved and identify recurring causes.

9. Inspections, Entry, and Documentation

Move-in, periodic, safety, maintenance, and move-out inspections serve different purposes. An inspection is not permission to harass, retaliate, photograph private information unnecessarily, or ignore notice requirements. The manager should document the purpose, notice, attendees, observed conditions, actions, and follow-up.

Condition records should be factual. “Tenant destroyed unit” is a conclusion. “Two interior doors have split panels; photographs 14–18; resident states damage occurred during move” is observable and reviewable. Good records distinguish ordinary wear, resident-caused damage, casualty, deferred maintenance, and preexisting condition.

10. Vendor and Contractor Management

Vendor selection should consider qualifications, licensing where required, insurance, safety, scope, price, references, availability, data access, and conflicts of interest. The manager should use written scopes, approval limits, change-order procedures, completion verification, invoice matching, and tax documentation.

A low bid is not always the lowest total risk. Uninsured or unqualified work can create injury, property, code, warranty, and insurance problems. Related-party vendors or referral benefits should be disclosed and handled under the agreement and law. The manager should not accept undisclosed compensation that conflicts with the principal’s interest.

11. Insurance and Risk Transfer

Property insurance, general liability, workers’ compensation, professional liability, cyber coverage, crime or fidelity coverage, flood coverage, equipment breakdown, and other protection may be relevant. The manager should understand operational requirements but should not act as an insurance professional unless authorized.

Incident procedures should protect people first, contact emergency services when appropriate, preserve evidence, notify the owner and insurer, avoid unsupported admissions, and document facts. Certificates of insurance help verify vendor coverage but do not replace careful contract review or confirm every policy term.

12. Records, Privacy, and Data Security

Management files may contain identification, financial information, screening reports, disability-related information, access codes, bank data, leases, notices, photographs, and incident records. Access should be limited to legitimate business need. Electronic systems require strong authentication, role-based permissions, backups, secure transmission, retention schedules, and safe disposal.

Records should show the complete management timeline without altering history. Corrections should preserve an audit trail. Managers must be cautious with text messages, personal devices, surveillance, social media, and vendor access because convenience does not eliminate confidentiality and privacy duties.

13. Owner and Resident Communication

Owners need timely, accurate reports showing occupancy, collections, delinquencies, income and expenses, bank reconciliation, work orders, capital needs, legal matters, incidents, and material variances. Residents need clear channels for payments, repairs, notices, accommodations, complaints, emergencies, and appeals.

Consistency matters. Important decisions should not live only in a phone call. Confirm instructions, promises, exceptions, payment arrangements, repair plans, and approvals in writing. Avoid emotional or retaliatory language. When a situation moves beyond operational management, bring in the managing broker or appropriate specialist.

14. Ending the Management Relationship

Termination of the management agreement does not erase outstanding duties. The manager may need to deliver notices, transfer leases and ledgers, account for funds, return keys and access credentials, notify residents and vendors, preserve records, complete reconciliations, and cooperate with the successor. Authority to act should stop at the proper time, but confidentiality, accounting, and record obligations may continue.

Learn It

Analyze property-management questions in five layers: authority, money, people, property, and records. First ask whether the manager has authority. Then protect funds, apply consistent resident procedures, address physical risk, and document the decision.

Live It

A professional manager uses repeatable controls: written authority, approved budgets, reconciled ledgers, fair screening, risk-based maintenance, verified vendors, incident procedures, protected data, and clear reports. The system should work even when the usual employee is absent.

Pass It

On the exam, choose the answer that stays within authority, accounts for money, refuses illegal instructions, follows fair housing, responds to safety risk, and creates a reliable record. Shortcuts usually signal the distractor.

Indiana Law Spotlight

Partially verified as of August 25, 2026. IC 25-34.1-3-2 generally requires a real-estate license when a person acts for consideration to lease, rent, manage, list, or perform another regulated real-estate act in Indiana. The statute contains specific exemptions—including defined owner, employee, and limited apartment-rental situations—but a manager must confirm that every element of an exemption applies rather than treating “property management” as automatically unlicensed.

IC 25-34.1-4-5 requires each broker company to maintain one or more clearly identified trust accounts for funds belonging to others, keep personal and other business funds out, and maintain detailed records identifying each beneficiary’s funds. Under 876 IAC 8-1-13, a broker company collecting money while performing regulated acts must establish an escrow/trust account at a federally insured financial institution and must provide a detailed summary when properly requested in an investigation.

Current 876 IAC Article 8 places direction, supervision, and management of a broker company with its managing broker. It also limits unlicensed assistants: they may not perform licensed functions such as showing property, explaining a lease to outsiders, conducting an open house, or negotiating a management fee. Broker advertising must identify the broker company, and offering property for rent or lease requires written consent from the owner or authorized agent. Failure to account for and remit others’ money, receiving an undisclosed direct profit, compensating an unlicensed person for licensed services, fraud, or a final determination of unlawful discrimination may constitute incompetent practice.

The Indiana Civil Rights Commission confirms that housing services and property-management companies are covered contexts and currently identifies race, color, religion, sex, disability, national origin, ancestry, and familial status as protected classes in housing.

Practical brokerage application: Confirm licensure before assigning duties, keep written owner authority, route licensed decisions through properly associated brokers, maintain beneficiary-level trust records, reconcile independently, document vendor conflicts, and apply screening, maintenance, and accommodation procedures consistently.

Verification queue: Every statutory exemption, management-agreement requirement, property-management account procedure and deadline, records period, lease-signing and litigation authority, deposit transfer, screening-report rule, maintenance and entry procedure, eviction and abandonment process, vendor requirement, fair-housing exemption or remedy, local ordinance, termination handoff, and controlling decision remains queued where not expressly verified. No fact-specific exception or remedy is presented as automatic.

National Exam Alert

Property managers are agents, not owners. The management agreement is the primary source of contractual authority. NOI equals effective gross income minus operating expenses—not mortgage debt service, depreciation, or income tax.

Common Exam Trap

Do not confuse an owner’s instruction with lawful authority, a security deposit with operating income, preventive maintenance with capital replacement, or a management fee with permission to receive undisclosed vendor compensation.

PASS FIRST Memory Trick

A-M-P-R: Authority before action · protect Money · serve people and Property consistently · preserve the Record.

Broker Insight

A property manager is judged by the file as much as the outcome. A resolved leak with no work order, entry record, invoice, or follow-up remains a risk. Build the record while the work happens, not after a dispute begins.

Tables & Comparison Charts

Management area	Weak practice	Professional control
Authority	Rely on verbal assumptions	Written scope, limits, and approvals
Funds	Use one undifferentiated account or ledger	Required separation, individual ledgers, reconciliation, review
Screening	Make case-by-case exceptions without standards	Written lawful criteria and accommodation process
Maintenance	Respond only when complaints repeat	Risk triage, preventive schedule, work-order closeout
Vendors	Select by lowest price alone	Scope, qualifications, insurance, conflicts, invoice match
Records	Keep decisions in personal texts	Central file, access control, retention, audit trail
Reporting	Send totals without explanation	Budget variance, occupancy, collections, risk, action items

Chapter Summary

• A property manager acts as the owner’s agent within written authority and law.
• The management agreement should define scope, spending, emergencies, compensation, funds, records, reporting, and termination.
• Indiana generally requires licensure for compensated real-estate management unless a precise statutory exemption applies.
• Indiana broker companies must use clearly identified trust accounts for others’ funds, exclude personal and business funds, and maintain beneficiary-level records.
• Budgets, variance reports, rent rolls, ledgers, and reconciliations turn activity into accountable operations.
• NOI excludes debt service, depreciation, and income taxes.
• Screening, collection, accommodations, maintenance, entry, and enforcement require consistent lawful procedures.
• Maintenance should be triaged by safety and property risk, supported by work-order documentation.
• Vendor controls, insurance, privacy, data security, and incident response reduce operational exposure.
• Termination requires an orderly transfer of authority, records, money, keys, and unresolved obligations.
• Fact-specific Indiana procedures and exceptions remain in the central legal-verification queue.

Quick Review

1. Can you identify the manager’s source and limit of authority?
2. Can you distinguish operating expenses, capital expenditures, debt service, and NOI?
3. Can you explain commingling, conversion, ledgers, and reconciliation?
4. Can you apply consistent screening and accommodation procedures?
5. Can you prioritize emergency, preventive, corrective, and capital work?
6. Can you identify the records needed for inspections, incidents, vendors, and owner reporting?
7. Can you explain the handoff required when management ends?

Practice Questions

1. The primary contract defining a property manager’s authority is the:
   1. Tenant’s application
   2. Property management agreement
   3. Vendor invoice
   4. Title insurance policy
2. An owner instructs a manager to reject every applicant with children. The manager should:
   1. Follow the order because the owner is principal
   2. Apply the rule only to large families
   3. Remove the instruction from the file
   4. Refuse the unlawful instruction and escalate appropriately
3. Which provision most directly determines whether a manager may approve a $4,000 nonemergency repair?
   1. The spending authority in the management agreement
   2. The resident’s credit score
   3. The property tax assessment
   4. The deed’s habendum clause
4. Potential rental income is $300,000, vacancy and collection loss is $18,000, other income is $6,000, and operating expenses are $108,000. NOI is:
   1. $174,000
   2. $192,000
   3. $180,000
   4. $288,000
5. Which item is ordinarily excluded from NOI?
   1. Routine landscaping
   2. Mortgage debt service
   3. Property insurance
   4. Management fees
6. A manager uses tenant deposits to pay office payroll and plans to replace the funds next week. This most directly creates risk of:
   1. Accretion
   2. Novation
   3. Subrogation
   4. Conversion
7. Which control best detects unexplained differences between bank activity and property ledgers?
   1. Regular bank reconciliation with review
   2. A higher vacancy allowance
   3. A verbal rent roll
   4. A longer lease term
8. A written screening standard is applied to some applicants but waived for others based on national origin. The strongest concern is:
   1. Capital budgeting
   2. Constructive notice
   3. Discriminatory inconsistent treatment
   4. Economic obsolescence
9. A resident requests a reserved parking-space exception because of a disability. The manager should first:
   1. Charge a pet deposit
   2. Use the established individualized accommodation process
   3. Demand the resident’s complete medical file
   4. Deny every exception to maintain consistency
10. Which maintenance request normally receives the highest priority?
    1. A request to repaint a bedroom
    2. A loose cabinet handle
    3. A request for new blinds
    4. A reported gas odor in an occupied building
11. Scheduled HVAC servicing intended to reduce failures is:
    1. Preventive maintenance
    2. Constructive eviction
    3. Conversion
    4. Functional obsolescence
12. Which inspection note is most professional?
    1. Resident is careless
    2. Unit is terrible
    3. Kitchen sink supply line is leaking; water observed in cabinet; photographs 5–8
    4. Resident obviously caused everything
13. Before assigning a roofing project, the manager should primarily verify scope, qualifications, insurance, price, and:
    1. The tenant’s mortgage balance
    2. Any conflict of interest
    3. The assessed value of nearby property
    4. The owner’s marital status
14. A vendor offers the manager an undisclosed personal rebate for every referral. The manager should:
    1. Accept because the vendor is inexpensive
    2. Divide it with the leasing staff
    3. Call it a security deposit
    4. Decline and address disclosure, authority, and conflict requirements
15. Which report best shows units, occupants, lease dates, rents, and balances?
    1. Rent roll
    2. Deed index
    3. Survey
    4. Amortization table
16. Actual repair expense materially exceeds budget because a water line failed. The owner report should:
    1. Hide the overage until year-end
    2. Delete the budget
    3. Show the variance and explain cause, response, and expected impact
    4. Reclassify every repair as rent
17. Which data practice is strongest?
    1. Share applicant reports with every vendor
    2. Limit access by business need and preserve a secure audit trail
    3. Store passwords in a public spreadsheet
    4. Photograph private documents for personal use
18. After a serious property incident, the manager’s first priority is generally to:
    1. Write a marketing post
    2. Promise the owner there is no liability
    3. Destroy informal notes
    4. Protect people and contact emergency services when appropriate
19. When a management agreement terminates, which duty may remain?
    1. Accounting for funds and transferring records
    2. Signing new leases forever
    3. Ignoring unresolved deposits
    4. Using the owner’s access credentials
20. An Indiana broker company collects rents and security deposits while managing property for others. The strongest required control is to:
    1. Deposit the money into the manager’s personal account
    2. Use the money for company payroll until the owner requests it
    3. Place others’ funds in a clearly identified trust account and maintain beneficiary-level records
    4. Treat every receipt as earned management income

Detailed Answer Explanations

1. B. The management agreement creates and limits the manager’s contractual authority. Applications, invoices, and title policies do not establish the owner–manager scope.
2. D. An agent must not obey an unlawful discriminatory instruction. Refusal, documentation, and appropriate escalation protect applicants, the owner, and the manager.
3. A. The agreement’s repair and spending provisions determine whether owner approval is required. The other documents do not grant repair authority.
4. C. Effective gross income is $300,000 − $18,000 + $6,000 = $288,000. Subtract $108,000 of operating expenses to produce $180,000 NOI.
5. B. Debt service is a financing cost below NOI. Landscaping, property insurance, and management fees are ordinarily operating expenses.
6. D. Unauthorized use of another party’s funds is conversion. An intent to restore the money later does not create authority.
7. A. Reconciliation compares bank records with the accounting system and identifies missing, duplicated, stale, or unauthorized items. Independent review strengthens the control.
8. C. Selective enforcement based on national origin is discriminatory treatment. A policy is not safe merely because it is written.
9. B. The manager should engage in the property’s lawful individualized accommodation process. Automatic denial is not consistent treatment, and unnecessary medical records should not be demanded.
10. D. A gas odor can threaten life and property and requires emergency triage. Cosmetic and minor repair requests follow routine priority.
11. A. Preventive maintenance is scheduled before failure to preserve performance and reduce risk. The other choices are unrelated legal or valuation concepts.
12. C. Professional notes record observable facts, location, condition, and evidence without unsupported character judgments.
13. B. Vendor due diligence includes conflicts because undisclosed relationships can distort selection and violate the manager’s duties.
14. D. A hidden personal benefit conflicts with loyalty and accounting duties. The manager should not relabel or privately share it.
15. A. A rent roll organizes tenancy and rent information. It should be reconciled with leases and ledgers rather than treated as a substitute for them.
16. C. Variance reporting should explain what changed, why, what management did, and how the forecast may be affected. Concealment or false coding destroys reliability.
17. B. Least-necessary access, secure systems, and an audit trail protect sensitive information. Broad sharing and personal storage increase privacy and security risk.
18. D. Life safety comes before financial, reputational, or reporting concerns. After immediate protection, the manager should notify appropriate parties and document facts.
19. A. Termination ends prospective authority at the proper time but does not erase accounting, confidentiality, record, and handoff obligations.
20. C. IC 25-34.1-4-5 requires the broker company to maintain clearly identified trust accounts for funds belonging to others, exclude personal and other business funds, and keep detailed records showing each beneficiary’s funds. Using entrusted rent or deposits as personal or operating money is not permitted.

Mastery Checklist

• I can explain why a property manager is an agent rather than an owner.
• I can identify the essential provisions of a management agreement.
• I can calculate effective gross income and NOI and distinguish operating expenses from debt service and capital costs.
• I can explain ledgers, reconciliation, commingling, and conversion.
• I can apply consistent screening, collection, accommodation, and resident-service procedures.
• I can prioritize maintenance by safety, habitability, property damage, and urgency.
• I can create factual inspection, work-order, incident, and owner-reporting records.
• I can evaluate vendors for scope, qualifications, insurance, price, and conflicts.
• I can recognize privacy, cybersecurity, and insurance issues requiring controls or specialist input.
• I can describe the orderly transfer required when management ends.
• I can distinguish national management principles from Indiana rules awaiting verification.
• I can answer at least 80% of the chapter assessment and explain why each distractor is less appropriate.