5 Tips for Managing Risk in a Real Estate Business

Risk is a part of our everyday lives, both in personal and business settings. While its scale, scope and severity will often vary between industries and between businesses, as will its impact, no industry or business is immune to it. Here’s how to manage risk in your real estate business.

When it comes to the real estate industry there are various kinds of risks that businesses face including financial, legal and other risks. However, one type of risk that is of particular importance are financial risks and the loss of money. This is especially true because real estate transactions usually involve large amounts of money. Therefore, a real estate business that falls victim to a financial risk, by way of a fraudulent activity, for example, can potentially be put out of business by such actions.

Caution and best business practices should, therefore, always be practiced with all real estate transactions and businesses as a way to minimize the potential of this or any other risk occurring.

While risks are unavoidable, the possibility of them occurring can often be minimized and their impacts can similarly be reduced. This article will list and discuss 5 effective tips that can be employed by any real estate professional or business owner as a way to manage or mitigate some of the risks that are inherent in their business.

Standard operating procedure

It is important to maintain consistency when dealing with clients in any real estate deal whether it is from the buy or sell-side of the transaction. One fundamental rule is to put in place standard operating procedures and make sure they are adhered to by all employees and for all transactions. This ensures consistency in all your dealings so that over time, this is what your business will be known for. If at some point someone does or says something negative about the business or contrary to what you are normally known to do, then you will have your standard procedures and the constancy of your past actions to use to contradict what is being said about the business. It would, therefore, be easier to refute the negative things being said about your business.

The necessary time and energy should, therefore, be put into developing a very robust and comprehensive standard operating procedure and strong efforts should be made to ensure that all employees of the business adheres to them at all times.

Document Everything

Documents are very important in a real estate business or transaction. They vary in the purposes they serve from being used as a means of verifying something to providing proof of something that has been said and many more. Documents can often be the saving grace when you need it the most.

If a disagreement arises between the buyer and seller for instance, documents and all communication logs (which is discussed next) between them can be referred to, to back you up on what you say.

Proof of payment or payment slips, proof of ownership or title deeds, listing agreements, property tax receipts, mortgage payment records, homeowners insurance records, emails and text messages are just some of the documents and communication logs that are important in any real estate transaction and business. It is, therefore, important that any and all such documents are properly kept by the relevant parties to the transaction.

Communication & Communication logs

Communication is a key element in any business and it is no different when it concerns property businesses. The importance of keeping records of all communication regarding a property deal cannot be over-emphasized. Even verbal communications or agreements that were not recorded can be logged by simply sending an email to the other party involved, a summary of the agreement or discussion that was had.

The value of such communication logs can range from helping to resolve a dispute, resolving it in your favor, or helping to save a transaction from going sour.

Just as it is important to keep a log of all communication, it is equally important to stay updated on all communication channels when overseeing a real estate transaction. If your client prefers and or has been known to be more responsive via one communication channel like Whatsapp, for instance, don’t send them an email and expect the same type of responsiveness or be upset if you don’t get it. A lack of communication is one of the surest ways to scuttle any business deal. Therefore, to ensure that the transaction runs as smoothly as possible, be sure to maintain a constant and consistent line of communication with your client across all relevant channels. This can prevent the offset of issues further down the line.

There are ways in which you could facilitate a smooth real estate transaction and eliminate communication barriers. There are a number of real estate transaction management software in the market and most of them provide not just a communication tool, but a suite of other transaction management tools that enables you to complete tasks online, track payments, record agreements and finalize a real estate deal.

Disclose information

Disclosure is important in real estate transactions. There are certain disclosure laws that all parties to a transaction need to abide by and failure to do so leaves you exposed to being sued or slapped with a fine or other penalty. For instance, when a seller discloses everything that is faulty with a property, they are protecting themselves from future claims by the new owner or their insurance provider.

It is important to note that disclosure laws are exempt from normal wear and tear of a property if it had been disclosed to the new owner. When it comes to disclosure laws, a real estate attorney can educate you further on the matter and ensure that whether you’re the buyer or the seller, you don’t incur any legal claims due to failure to disclose important information. Although disclosure laws differ from state to state, the most common disclosure laws cover structural and mechanical issues, natural and environmental hazards and boundary line disputes. 

Business Insurance

Any and all businesses should have business insurance coverage where possible. This is more so true for businesses that are engaged in the buying and selling of properties that often involve large sums of money. In such cases, any business owner would rather be safe than sorry and the one way to ensure that your business is safe and protected is to have business insurance.

Even businesses that are in the property rental space and in fact, any other real estate professional, will do well to have the protection that business insurance provides.


Like any other type of business, a real estate business will have its own specific risks which cannot be avoided. Identifying what those potential risks are and working to minimize the possibility of them happening or their effect, should they happen, is the smart way to go about it. While identifying potential risks is a different subject matter unto itself and beyond the scope of this article, the above-mentioned tips are some of the things that can be done to help with minimizing their effects should they occur.

Author Bio

Kanayo Okwuraiwe is a startup founder, an incurable entrepreneur, and a digital marketing professional. His is also the Telligent Marketing LLC, a digital marketing company that provides lawyer SEO services to help law firms grow their practices. Follow him on Linkedin.

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