ment on the part of tenants. But when other prices begin to fall and rent, following the regular course but behind it, continues to rise, attention is focused on the landlord and he is berated. He has only one recourse, and that would be to open his books to his tenants. In many cases this would remove suspicion and criticism. But not many landlords take their tenants thus into their confidence. An interesting example of the results to be obtained by frankness occurred when a landlord sent to his tenants a notice of increased rents accompanied by a statement showing that, allowing five per cent on his investment, his costs had increased so that an increased rent of twenty cents a room a week was necessary to cover the costs. His increase met with no opposition. The Constructive Attitude in the Rent Department.More and more real estate men are coming to see the opportunities in the rental department for building up their business. The renter of today ought to be the home-owner of tomorrow, and the wide-awake rental department can establish wide contacts and furnish valuable "leads" to the sales department. This constructive attitude should run through all the dealings of the rental department. It ought not to be sufficient for a member of this department to collect rents month after month and deliver receipts in return. He ought to be building up a desire for ownership in every tenant with whom he comes into contact. This can be done by skillfully calling attention to the advantages of home-owning. The opportunities and advantages of such a department are put thus by the manager of a large property renting and management organization: 1 1 F. B. Arnold, speaking before the annual Convention of the National Association of Real Estate Boards, in Cleveland, June, 1923, pp. 202 ff. Proceedings. Such a department renders natural assistance to the balance of the organization. It pays the office overhead if headed by a man with adequate experience, furnishes the clerical department for the balance of the organization and is a natural feeder or business getter, and in that way forms contact. There is the real estate proposition that finds its way into your office because of your management department that would not probably have arrived there otherwise. There is the contact with a number of property owners already investors who may be encouraged to make additional deals. Many of the properties which our departments will manage are for sale or will be so offered. Quite naturally those properties will be offered to the sales department within our own office. There is contact with hundreds and maybe thousands of tenants, all of whom or many of whom are real prospects for the brokerage, home building, and subdivision department. Not least of the advantages offered in the conduct of a management department within a real estate organization is the advertising and publicity that results. Not only is there the contact between the tenant and the owner but there are the trade people with whom the office comes in contact in the management and the operation of the property, all of which offers another opportunity for prospects to the brokerage and home building departments. SUMMARY I. The instrument used in renting properties is known as a lease. The chief features of the lease which require special attention are: (1) its provisions favor the landlord; (2) it establishes a relationship of landlord and tenant; (3) it should make all charges payable as rent. 2. The interests of landlord and tenant in renting of residential property are frequently adverse. The function of the real estate agent is to harmonize those interests as far as possible, remembering always that he represents the land lord and it is his duty to secure as large a return as possible, within the limits of fairness, on his landlord's investment. 3. Discrepancies in residential rent are sometimes to be explained by the hesitancy with which the landlord increases the rent of a "sitting" tenant. 4. The renting of business property is a highly developed phase of leasing. The rentable value of business property depends upon the number of people who pass by the location and the opportunity for the display of goods. 5. A system of "clocking" has been developed, especially by chain stores, which enables their managers to determine very accurately the amount of sales which can be made in a year at each prospective location. The value of business property is established by this system of "clocking." 6. It is to the landlord's advantage to make a long-term lease when property values are falling; when they are rising his interests are served better by a short-term lease. 7. The interests of both parties to a lease are probably best protected by a lease establishing a minimum rent supplemented by a percentage of sales. 8. The management of office buildings is another specialized activity which has arisen from congestion of business in large cities. Office space is rented on a square-foot basis and the price is determined by the advantages which are offered by the building and the particular space rented. 9. The ninety-nine-year lease gives opportunity for the owner of real estate to secure a certain and determined income and for the business man to erect his building with a minimum of capital. 10. In the drawing of special forms and leases the services of an attorney are almost indispensable. II. Regulation arises from the emergency created by housing shortage. It may be regarded as a temporary phe nomenon. 12. Rental departments furnish a big opportunity for development of other departments as well as increasing home ownership. CHAPTER IV INSURANCE Questions It has been said that insurance is but a gamble. What answer can be given to this statement? Why does insurance play such an important part in the granting of credit? Why does insurance serve to prevent fires? What are the main provisions of an insurance policy? What is meant by a "standard policy"? Explain the coinsurance clause. What are the two standard schedules for rate making? Upon what basis does each of these schedules fix the rate? What is the Fire Underwriters Association? Upon what basis is competition conducted in insurance writing? Enumerate other forms of insurance than fire. What is the peculiarity of steam boiler insurance? of plate glass insurance? of crop insurance? What are the opportunities offered to the insurance department of the real estate office? Definition and Purpose of Insurance.-Insurance has been defined as the act of indemnifying or guaranteeing against loss from a certain specified contingency. The practice arose several centuries ago, and has been common in a number of different forms, some of which were legitimate and others little less than gambling. The most common forms today are life insurance, fire insurance, and marine insurance. The first insures a person against loss due to the death of another; the second guarantees against loss by fire, and the third covers ships and cargo against loss at sea. Tornado, lightning, casuality, liability insurance, and several other forms such as credit insurance and insurance of business returns are frequently written today. The real estate dealer, however, is largely interested in fire insurance, and the principles of fire insurance apply to a large degree to the other kinds. This chapter therefore will deal particularly with that branch. Substitutes Small Known Cost for Large Uncertain Loss. The great advantage of insurance is that it substitutes for an unknown, uncertain, great loss a known, certain, and definite small loss or cost. It is a plan by which many who are eventually subject to a loss from a contingency guarantee to make it up to those upon whom the loss actually falls. Now, if all those insured had to accumulate enough of a reserve to meet the worst event, a very large amount of capital would have to be sequestrated to cover the possible losses. But in actual practice, not all those interested will suffer losses. The law of statistical regularity teaches that only a certain fairly fixed proportion of the whole group will suffer within a given length of time. Consequently a smaller proportional sum will have to be set aside to meet losses as the number of those insured increases. For example, in case of no insurance, a property owner must accumulate as rapidly as possible a sum sufficient to reestablish himself in case of loss. But if he combines with a thousand other owners, the thousand will not have to accumulate enough to cover the total value of their property, for experience will prove that not everyone of them will suffer loss during a definite reasonable length of time. As the number increases, the margin between the reserve needed and what experience teaches the actual losses will be can be reduced; the law of statistical regularity operates with increasing accuracy as the number of chances increases. |