Real estate risk management is not a debatable option for property and land owners, renters and investors. Life in general is full of risks. There are risks in every action, every step and decision. As great as real estate is, it is not devoid of risks. Real estate risks are numerous and can be avoided and managed, this is the reason for real estate risk management.
Real estate risk management involves identifying, mitigating or managing the risks that come with owning, leasing, letting, or investing in any real estate property.
Different Forms of Risks
Risks come in different forms. Land and property owners, real estate agents and even investors are liable to certain risks. Some of these risks are:·
Real Estate Agent Risks
. Accident are property tours including travel.
Since real estate agents travel far distances to give tours of property and lands to various prospective clients, they alongside the clients run the risk of being affected by accidents of all sorts. These are not limited to road accidents but all other forms.
. Dealing with unsatisfied clients
Agents deal directly with the clients and as such they run the risk of getting sued and receiving various sorts of lawsuits relating to the dissatisfaction of clients. This is asides various outburst and behavioral actions that can ensue from having an unsatisfied client. Also, considering that different humans handle their displeasure differently, this opens up the agent to all sorts.
Volatility of the market
The volatility of the market affects the business of many real estate agents. If the demand for properties goes down, they run a risk of becoming almost jobless if the properties in demand at the time are not in their direct or indirect control at the time.·
Owning a home
If you own a property or land, you are liable to these risks:
. Damage to property
Whether or not you live in your property or have it rented out, there’s a risk of dealing with damages. While some of these damages may be easy to deal with, damages such as fire incidents or floods or earthquakes can lead to total loss of property.
Demands change and if you’re caught on the wrong side of the coin, your property may become dormant for some time. This risk is however not a common reality for landowners in Nigeria as the housing deficit provides a readily available market for properties.
. Taking on the wrong tenantsThis risk is for property owners who need to rent out their property. You have no control over this but some individuals make it extremely difficult to manage your property. One wrong tenant can damage your property beyond repair.·
Real Estate Investor
If you invest in real estate here are some of your likely risks:
. Currency value fluctuations
If you invest a certain amount and after sometime devaluation and inflation happens, your investment yields you a profit but it is not as valuable as it could or should have been. This risk is another reason you probably want to consider real estate investment, as with devaluation and inflation, there’s still an increase.
. Not properly identifying the right trendIdentifying the right trend means a greater ROI, in the same vein, the wrong trend may affect your ROI and possibly result in losses.
. Real Estate Risk Management
Here are a few ways to manage both preventable and unpreventable real estate risks
1. Avoidance: Avoidance of risks involves not participating in activities that either increase your risk, or help you avoid the risk. This is the most effective way to handle a risk you cannot handle.
2. Retention: Retention acknowledges and accepts risks in order to mitigate future or even greater risks.
3. Sharing: Sharing risks involves a balance between the two participating parties to both play a part as regards the risk. This way, a risk can be handled effectively by both parties in the case that it happens.
4. Transfer: Transferring risk involves taking yourself completely out of the picture to prevent handling a risk. With transfer, the primary aim is to protect yourself. An example of this is through real estate insurance.Real Estate Risk Management Steps:
Step 1: Identify the Risk·
Step 2: Analyze the Risk·
Step 3: Evaluate or Rank the Risk·
Step 4: Treat the Risk·
Step 5: Monitor and Review the Risk
While risks are inevitable, they are avoidable. The best option for avoidable risk is to avoid the. In the case of unavoidable risks, it is best to speak with a professional to best guide you on how best to manage them.