Comprehensive Analysis of Risk and Finance in Real Estate Business

This assignment analyzes risk and financial aspects within the real estate industry. It starts with defining risk and the duty of care, then explores various risks faced by landlords, tenants, sellers, and buyers. The document details the risks in property sales, management, and agency administration, including misrepresentation, non-disclosure, and conflicts of interest. It covers risk identification, assessment, and management strategies, including insurance types and risk mitigation techniques. Furthermore, the assignment delves into financial planning, financial obligations, and the use of financial statements, KPIs, and statutory taxation obligations. It discusses business planning, debt collection strategies, and steps to improve financial positions, especially in a downturned market. The document provides comprehensive insights into the financial and risk management aspects of the real estate business.

Assessment

Table of Contents
TASK 1............................................................................................................................................1
Question 1 ...................................................................................................................................1
Question 2 ...................................................................................................................................1
Question 3....................................................................................................................................1
Question 4....................................................................................................................................1
Question 5....................................................................................................................................1
Question 6....................................................................................................................................2
Question 7....................................................................................................................................2
Question 8....................................................................................................................................2
Question 9....................................................................................................................................2
Question 10..................................................................................................................................2
Question 11..................................................................................................................................2
Question 12..................................................................................................................................2
Question 13..................................................................................................................................3
Question 14..................................................................................................................................3
Question 15..................................................................................................................................3
Question 16..................................................................................................................................3
Question 17..................................................................................................................................4
Question 18..................................................................................................................................4
Question 19..................................................................................................................................4
Question 20..................................................................................................................................4
TASK 2............................................................................................................................................4
Question 1....................................................................................................................................4
Question 2....................................................................................................................................5
Question 3....................................................................................................................................5
Question 4 ...................................................................................................................................5
Question 5....................................................................................................................................5
Question 6....................................................................................................................................5
Question 7....................................................................................................................................5

Question 8....................................................................................................................................6
Question 10..................................................................................................................................6
Question 11..................................................................................................................................6
Question 12..................................................................................................................................6
Question 13..................................................................................................................................6
Question 14..................................................................................................................................7
Question 15..................................................................................................................................7
Question 16..................................................................................................................................7
Question 17..................................................................................................................................7
Question 18..................................................................................................................................7
Question 19..................................................................................................................................7
Question 20 .................................................................................................................................8
Question 21.................................................................................................................................8
Question 22..................................................................................................................................8
Question 23..................................................................................................................................8
TASK 3............................................................................................................................................9
Question 1....................................................................................................................................9
Question 2....................................................................................................................................9
Question 3....................................................................................................................................9
Question 4....................................................................................................................................9
Question 5 .................................................................................................................................10
Question 6..................................................................................................................................10
Question 7..................................................................................................................................10
Question 8..................................................................................................................................10
Question 9..................................................................................................................................10
Question 10................................................................................................................................10
Question 11................................................................................................................................11
Question 12 ..............................................................................................................................11
Question 13 ..............................................................................................................................11
Question 14................................................................................................................................11
Question 15................................................................................................................................11

Question 16................................................................................................................................12
Question 17................................................................................................................................12
Question 18................................................................................................................................12
Question 20................................................................................................................................12
REFERENCES..............................................................................................................................13

TASK 1
Question 1
Risk refers to a degree of uncertainty or a possible loss which can occur while taking a
particular action (Appuhami and Perera, 2016). It can be measured by using methods like
certainty equivalent approach, sensitivity analysis, probability theory approach, decision tree
analysis etc.
Question 2
Duty of care in context of an agency refers to obligation faced by agent to avoid certain
acts which can be foreseen to cause damage to another. Thus, agents must take reasonable care
while doing acts likely to affect other people.
Question 3
Agencies generally owe a duty of care to their clients or customers when there is an
agreement or a contract signed between them. They have a task to identify risks for their clients
and try to prevent them so that they don't cause any harm (Sharma and et.al., 2018).
Question 4
(A) Risks faced by landlords- Non-payment of rent, risk of damage to the property, real-
estate market failure.
(B) Risks faced by tenants- Higher expenses than expected, excessive rent charged by
landlord, high vacancy rates.
(C) Risks faced by sellers- Expiry of sale agreement, not getting the desire price, balance
payment due.
(D) Risks faced by buyers- Increase in prices, not getting the desired quality of goods,
risk of purchasing defective goods (Barnett and et.al., 2016).
Question 5
(A) Tradespeople- Liquidity risk, reputation risks
(B) Insurers- Reduced market access, distribution of loss
(C) Staff- Investment related risks, mismatch between assets and liabilities
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Question 6
The risks involved in property sales are volatility of market, lack of credit available for
consumers. When the market is volatile it may significantly reduce profits of dealers because of
low prices. When consumers face difficulties in getting credit it will result in decrease in overall
sales. These factors can affect the real-estate business of any property dealer.
Question 7
Risks associated with property management are physical risk and tenant risk. Physical
risk is the potential damage to property of landlord, tenant risk is a chance of loss of rental
income due to non-payment of rent by tenants. In addition to these, there are also chances of a
legal conflict arising for property managers (Belackova and Wilkins, 2018).
Question 8
The risks in agency administration are that the management will seek to benefit itself
rather than the stakeholders. Also, there is a possibility that managers don't act in the best interest
of stakeholders.
Question 9
(a) If non-disclosure of material information causes loss to a client legal action can be
taken and the contract may be terminated.
(b) These risks may be minimised by providing all the relevant information required as
per law to the client in the contract (Johns and Davey, 2019).
Question 10
Statement of work, work breakdown structure, budget, schedule, acquisition plan and
execution plan are sources of information which are required to identify the potential risks which
may occur.
Question 11
Risks can be identified and analysed by using tools and techniques like brainstorming,
delphi technique. Brainstorming can be done by a group of people who seek to identify the risk
of a project. Delphi technique involves anonymous consultation with a team of experts who
provide their views on subject in the form of a report (Chiesa and et.al., 2018).
2

Question 12
Misrepresentation, Non disclosure of property details, Conflict of interest, Failure to
deliver service and Client lawsuits are the potential risks which are faced by a real-estate agency.
Misrepresentation means that facts are not presented properly, Non disclosure means that
essential details have not been disclosed. Conflict of interest means that own interest has been
given priority to client's interest. Failure to deliver service means that it has not been delivered as
promised. Client lawsuits can be filed if the clients are not satisfied with the real-estate agency.
Question 13
Misrepresentation can result in client taking legal route against the agency which will
directly affect it. Non disclosure of property details will see the client abandoning the agreement
and the liability will fall on the agent. Conflict of interest can cause harm to the reputation of
agency and direct effect would be on the agent. Failure to deliver service as promised in
agreement will lead to buyer terminating the purchase of property which will directly affect the
agency (Devine, Farrell and Lee, 2017). Client lawsuits will result in bad reputation of agency
and thus the effect will be directly on agency.
Question 14
Identification of risks, assessment of risks, controlling of risk and reviewing of risks are
the four steps involved in risk process. Identification process is necessary to gather information
about risk, assessment is essential to find its impact, controlling is important to either eliminate
or control it and reviewing is required to monitor and improve control measures.
Question 15
Steps to analyse the risk identified are avoiding the risk, reducing consequences and
likelihood of it, transferring it, financing it, retaining it. Avoiding means trying to avoid an action
involving risks. Reducing consequences and likelihood involves implementation of systems and
procedures that minimise it. Transferring means shifting them, financing involves bearing its cost
if it occurs. Retaining is acceptance of it because it has low impact.
Question 16
Main categories of risks for an agency are risk of non-disclosure of information to clients,
legal obligations in case a consumer files a suit. If proper information is not provided to the
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clients then it can result in termination of contract. If the customer feels that fraud has been done
in agreement then a lawsuit may be filed against the agency (Echekoba and Ananwude, 2016).
Question 17
Avoidance, retention, sharing, transferring and loss prevention and reduction are the
methods used to manage the risks. Avoidance means trying to avoid risk as much as possible,
retention means acknowledgement of it to offset much larger risks. Sharing of risk means
dividing the liability, transferring involves transmission of liability of risk from an individual to
the insurer, loss prevention and reduction means trying to reduce the loss when it cannot be
prevented (Hilverda and et.al., 2017).
Question 18
Legislative measures are determined and assessed for strengths and weaknesses. Risks
are continuously monitored in line with agency practices, agency's policies and systems for
controlling risks including handling complaints are implemented.
Question 19
Property insurance, product liability insurance, vehicle insurance are types of insurance
relevant to an agency. Property insurance if for protection of property, product liability insurance
covers damages caused due to a product. Business interruption insurance is for protection of
owner in case business activities are interrupted due to happening of an event.
Question 20
Strategies are developing suggestion book where ideas to improve operational systems
are provided. Development of audit record book can be done to record failures in system and
breaches. Complaints register can be created and implemented to analyse different type of
complaints. Risk register should be made to record potential risks, doing their assessment and
monitoring their level (Tieman, 2017).
4

TASK 2
Question 1
It is a long-term statement which records the sources through which an individual will
receive funds and where they will be spent. It also includes financial objectives for well-being
and security and can be created independently or with help of a financial advisor (Adomako,
Danso and Ofori Damoah, 2016).
Question 2
(A) Tax Advisor
(B) Financial Advisor
(C) Accounting professionals
(D) Financial advisor
Question 3
The two ways are knowing numbers required by business and focusing on value.
Knowing how much business requires as start-up capital is necessary for the negotiation process.
Focusing on value is important so that a larger portion of equity is not sacrificed as it will affect
decision-making.
Question 4
Three financial obligations for businesses are The unique control register, threshold for
cash transactions and registering work contracts with REVISAL. The unique control register
includes checks done by various bodies, threshold for cash transactions helps in managing cash.
Registering work contracts with REVISAL involves registration of employees of the firm. All
these help a business in achieving expectations (Brüntje and Gajda, 2016).
Question 5
The two reasons are-
 Maintenance of unique control register helps in getting certifications done by various
bodies
 Setting a threshold for cash transactions will help in maintaining liquidity position of firm
5

Question 6
Income statement, cash flow statement and balance sheet are three financial statements
which help a firm in reviewing its financial position (Walsh and Cunningham, 2016).
Question 7
The two reasons are- Letting them know the financial position of company and how well
it is doing. It will also give them an idea about different short-term and long-term plans of
management with regard to the organisation.
Question 8
Records of income and sales, purchases and expenses, year-end statement of debtors and
creditors, bank and GST are necessary to be maintained by business to comply with various legal
obligations (Campos and et.al., 2017).
Question 9
A business plan contains all the necessary elements such as project report, funds required
for business, product selected, location etc. It will help in getting financial assistance as it gives a
complete overview of working model of enterprise and the amount of financial help required to
start operations.
Question 10
(A) True
(B) False
(C) True
(D) True
(E) True
(F) True
Question 11
(A) True
(B) True
(C) True
(D) True
(E) False
6

Question 12
Operational sales reports and manufacturing operational reports are KPIs which can be
used for monitoring and reporting on performance targets.
Question 13
GST reporting, Australian Business Number(ABN) and Pay as you go are the statutory
taxation obligations to be accounted for by business in its yearly budget (Clinton and Whisnant,
2019).
Question 14
There has to be a yearly provision set out of income statement of business in order to
meet these obligations. Also, provisions need to be created in yearly budget for statutory taxation
and financial obligations.
Question 15
(A) A business can introduce credit policy for such properties by providing easy options
for consumers such as flexible repayment period, lower rate of interest so that they are attracted
towards buying such properties (Turner and Endres, 2017).
(B) Debt collection strategies-
 Offering alternate and flexible terms for payment.
 Asking for great deal of collateral
 Analysing accounts
Question 16
KPIs can be monitored and assessed in budgets by using various techniques such as ratio
analysis, debtors turnover ratio and creditors turnover ratio etc.
Question 17
Financial reports can be used for monitoring the overall financial position of firm to see
the position at which it stands. Further, analysis can be also made on cash flow and the liquidity
position of company (Cole and Mehran, 2018).
Question 18
Regular monitoring and reporting on financial performance and plan of a business is
essential because funds requirements change over time and liquidity position also changes. Thus,
regular assessment is necessary to forecast these changes and planning well in advance.
7

Question 19
Assessment of break-even point, managing cash levels and re-assessment of quality are
some of the steps which a company can undertake to improve its financial position in a
downturned real-estate market (Lai and et.al., 2016).
Question 20
The Top level Managers take decisions and control to examine the position or stability of
the company. These top level managers can be classified into the following directors:
 Financial manager
 Charted Accountant
 Company Secretary
 Chief Financial Officer
Question 21
The purpose of profit and loss statement provides information for the company ability or
inability to generate profit by increasing revenue and reducing cost. It is calculated to identify net
profit/ loss for gross profit/ loss. The main principle for this statement is specify the company's
ability to generate sales, manage expenses and create profits (Gherhes and et.al., 2016).
Question 22
The purpose of balance sheet is to provide financial position of parties or firms with
displaying what the company owns and owes. It is calculated on the basis of fundamental
equations when Assets are equivalent to the addition liabilities and equity. It is prepared on the
end of an accounting period with the principle of business of health at a point of time (DeYoung
and Jang, 2016).
Question 23
The five stock items that may be needed to manage within an agency are as follows:
 Retail
 Residential
 Health care
 Office
 Mortgage
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