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Leasing & Property Management term

Property Management Agreement

A contract establishing an agency relationship between a property owner and a property manager, defining duties and compensation.

Why Property Management Agreement matters on the exam

This term belongs to Leasing & Property Management. The questions below are real items from Freehold's bank that use it - each one cites its source.

Exam questions using Property Management Agreement

Every Freehold question shows why the right answer is right — and cites its source.

A property manager pays a contractor for repairs using funds from the property management trust account. This disbursement is proper only if:

  1. It is authorized by the property management agreement or the landlord's approval for that expense
  2. The property manager personally believes the repair was necessary
  3. The tenant requested the repair, regardless of landlord authorization
  4. The amount is under a certain dollar threshold set by the property manager
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It is authorized by the property management agreement or the landlord's approval for that expense — Disbursements from a property management trust account must be authorized by the management agreement or the owner's approval, just as sales disbursements must follow the purchase contract.

Source: PSI National Real Estate Exam Content Outline — Broker Supplement

A fire destroys a home midway through its listing period. As a result, the agency relationship for that listing:

  1. Continues unchanged, since the listing agreement is still technically valid
  2. Automatically transfers to the buyer's agent
  3. Terminates
  4. Converts into a property management agreement
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Terminates — Agency terminates when the specific subject matter it was created around, such as a particular home, is destroyed, since the original purpose can no longer be carried out.

Source: PSI National Real Estate Exam Content Outline §5 General Principles of Agency

A property management agreement between an owner and a management firm primarily establishes:

  1. A joint venture in which both parties share ownership of the property
  2. An agency relationship defining the manager's authority, duties, and compensation
  3. A lease of the property to the management firm
  4. A mortgage lien in favor of the management firm
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An agency relationship defining the manager's authority, duties, and compensation — The management agreement is an employment contract that creates an agency relationship, spelling out the manager's scope of authority, specific duties, and how the manager will be compensated.

Source: PSI National Real Estate Exam Content Outline §8 Leasing & Property Management

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