American Journal of Industrial and Business Management, 2022, 12, 1175-1184

https://www.scirp.org/journal/ajibm
ISSN Online: 2164-5175
ISSN Print: 2164-5167

Risk Management in Real Estate Property

Management Systems

Thomas O. Ombati

Management Science & Project Planning Department, Faculty of Business & Management Science, University of Nairobi,
Nairobi, Kenya

How to cite this paper: Ombati, T. O. Abstract

(2022). Risk Management in Real Estate
Property Management Systems. American The purpose of this study is to analyze risk management in real estate prop-
Journal of Industrial and Business Man- erty management systems. The study will seek to address two specific objec-
agement, 12, 1175-1184. tives: to establish risks involved in the adoption of electronic commerce in
https://doi.org/10.4236/ajibm.2022.127063
real estate transactions and explore best practices in risk control inherent in
Received: March 18, 2022 electronic transactions in real estate sector. The study entailed a systematic
Accepted: July 4, 2022 review of empirical literature in order to arrive at conclusions. It was revealed
Published: July 7, 2022 that the most prevalent risks in real estate property management systems in-
Copyright © 2022 by author(s) and
clude fraud, theft, security and confidentiality of information, information
Scientific Research Publishing Inc. asymmetry, lack of trust, security of e-commerce infrastructure, existing and
This work is licensed under the Creative new laws among others. Some of the best risk management practices adopted
Commons Attribution International include use of privacy enhancement technologies, adoption of account-based
License (CC BY 4.0).
transactions, better website management, insurance and arbitration.
http://creativecommons.org/licenses/by/4.0/
Open Access
Keywords
Real Estate Property, Management

Organization of the Article

This article has seven sections. Section 1 is the introduction, Section 2 is litera-
ture review, Section 3 is methodology, Section 4 contains findings based on lite-
rature, Section 5 is the recommendations, Section 6 has the key contributions
and Section 7 is the limitations of the study.

1. Introduction
The last two decades have experienced an upsurge in the use of internet in pro-
viding real estate services to various stakeholders in the industry. Due to the
quest for greater efficiency and improved trade effectiveness, consumers and

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T. O. Ombati

service providers in the real estate industry have embraced internet use in con-
temporary times. The use of internet in real estate is likely to expand more in the
future as more real estate service providers seek to increase their revenues, reach
a wider clientele and provide real time quality services (Chin & Liu, 2004).
The adoption of internet based real estate transactions can be traced back to
the mid-1990s. Chin and Liu (2004) reveal that in the year 1995 only 2 percent of
buyers utilized the internet to search for homes. However, by the year 1999, the
percentage of American buyers using the internet to search for homes rose to 23
percent (Muhanna, 2000). This was a significant increase in duration of four
years in the USA alone. Further statistics reveal that in the first month of the
year 1995, there were only 100 websites that offered properties for sale in USA.
However, the number shot astronomically to 4000 websites by the end of the
same year (Heller & Krukoff, 1997).
The fact that there have been developments in how real estate transactions are
carried out especially through the internet, has led to increment in the level of
risk associated with these types of transactions. Trautman (2015) insinuates that
online e-commerce systems spend a huge amount of financial resources to deal
with risks that threaten their businesses. He further provides an example of
PayPal which spends tens of millions of dollars annually to meet the cost of ac-
counting, legal fees and managerial activities associated with e-commerce risk
management.
With the above understanding, it suffices to argue that as the adoption of
e-commerce real estate property management systems continues to expand around
the globe, so does the level of risk associated with online real estate transactions.
Most of the cyber risks that are faced by e-commerce platforms’ owners if they
do occur can significantly lead to escalation of the operating costs of an enter-
prise or even endanger the very existence of the entity (Trautman, 2015).
According to Evans (2014), the time that is available in a day is only limited to
24 hours and business entities must fight for the attention of the people within
this limited time. They further argue that this intense competition for people’s
attention has necessitated the invention of creative ways such as social platforms,
software platforms and many other internet applications to enable businesses to
reach their customers. This has led to an increment in the number of e-commerce
platforms thus posing huge risks to the businesses involved. The major question,
therefore, facing most e-commerce businesses including those in real estate is
how to manage the risks that are associated with online systems such as the real
estate property management systems.
The fact that there are many businesses that are currently conducting their
businesses through the internet or through e-commerce is a wake-up call for ef-
fective risk management. Business entities need to encourage early detection of
risks in order to develop appropriate mitigation measures. This will significantly
reduce the operating costs that may increase due to occurrence of a particular
risk. Risk management will assist entities to avert risks that may lead to exter-
mination of the business itself (Trautman, 2015). This article, therefore, seeks to

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 T. O. Ombati

establish the risks involved in the adoption of electronic commerce in real estate
transactions and explore best practices in risk control inherent in electronic trans-
actions in real estate sector.

2. Literature Review
2.1. Risks Prevalent in Real Estate E-Commerce Platforms
According to Chin and Liu (2004) one of the very common risks in real estate
e-commerce platforms is associated with misleading information. They argue
that the main aim of a real estate platform is to facilitate listing and eventual
purchase by potential buyers. Chin and Liu (2004) further assert that at the point
of listing there is a possibility of both good and bad listings to be made on the
website. However, it is the responsibility of website managers to develop proce-
dures that can enable potential buyers to identify property listings that do not
meet their expectations or have misleading information. They further argue that
buyers can use the procedures to differentiate between the genuine from the bad
property listings.
According to Trautman (2015) fraud is one of the most common and serious
risks that the majority of e-commerce platforms are faced. The increased use of
internet globally by majority of businesses in transacting has equally raised the
level of fraud associated with internet-based transactions. Trautman further ar-
gues that monetary fraud is common when movement of money between the
parties involved is taking place. This normally occurs because in some occasions
some sensitive financial information such as the credit card and debit card de-
tails may be revealed to the wrong people.
In a study that was carried out by Pinguelo and Muller (2011) several risks
associated with e-commerce platforms were revealed. They indicated that cyber-
crime is a common risk that most e-commerce systems must contend with. The
various forms of cybercrime that are common include economic or foreign spy-
ing, malicious employees who pose a threat to the business, spamming, phishing,
hacking of systems and email extraction programmes. All the above are issues
that have received increased attention by management in recent years.
Long (2007) argues that cyberspace can be equated to a battlefront with a wide
collection of soldiers prepared to fight and challenge one another in search of
supremacy. Estelle further indicates that some of the battles that are fought in
the e-commerce platform relate to legal protection of intellectual property. The
battles are likely to have an impact on how protection of intellectual property is
likely to be conducted in the future.
All those entities engaged in conducting business through the e-commerce
platform or those who are involved in the use of electronic payment systems are
faced with very many potential risks they must be aware of. These risks may in-
clude cybercrime, cyberterrorism, crime that is committed electronically, secu-
rity of the e-commerce infrastructure, protection of intellectual property, issues
related to internet governance as well as jurisdictional disputes among other

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T. O. Ombati

risks (Scott, 2016).

Trautman (2015) also argues that e-commerce systems are also likely to face
the risk associated with compliance to current and new laws and regulations. He
further insinuates that as the e-commerce platform expands the scope of its
business and spreads its business tentacles to other jurisdictions, the business is
then subject to new laws relating to money laundering, terror financing, con-
sumer protection, electronic funds transfer (EFT) and many others. Trautman
and Harrell (2016) also asserts if the e-commerce platform is found to be in con-
travention of these laws, then it may be subject to liability and this may necessi-
tate change of business practices.
Trautman (2015) while referring to PayPal online payment system indicates
that an online payment system is subject to laws that are applicable in the home
country and other countries where the business operates. They argue that there
is no universality in terms of the laws governing online payment business since
they vary from one jurisdiction to another. In as much as there may be in place a
program on compliance Trautman (2015) indicates that there can be no assur-
ance that the business can avoid fines or other enforcement actions in a few ju-
risdictions.
E-commerce systems including real estate property management systems also
face the risk of litigation especially if they violate laws and policies on privacy
relating to collection, usage and revelation of data that belongs to the users of
their sites. If the business fails to comply with its own policy or law relating to
privacy or consumer protection legislation, it may attract litigation and subse-
quent fining of the entity. Customers and state agencies are very vigilant and
ready to take action against a business that does not comply with existing laws
and regulations. This happened to Delta Airlines in December 2012 when Cali-
fornia Attoney General sued the firm for failing to include a privacy policy in its
mobile phone applications (Biener, Eling, & Wirfs, 2015).
According to Tu and Meredith (2015) e-commerce platforms entirely depend
on internet access to carry out their businesses. The users also depend on inter-
net to be able to transact through these platforms. The biggest risk associate with
overreliance on internet access is the understanding that the firms that provide
internet and related infrastructure may take actions or even introduce new
charges that can easily affect internet usage. If this happens, then e-commerce
platforms including real estate property management systems will be affected.
Poor development and maintenance of internet infrastructure will adversely af-
fect the e-commerce businesses.

2.2. Best Risk Control Practices in Real Estate E-Commerce

One of the ways through which fraud has been significantly reduced in real es-
tate e-commerce systems and other online e-commerce systems is through the
adoption of account-based networks. These types of networks make it possible
for incoming, flow through and exiting funds to be detected by the system. This
close monitoring through the network makes it possible to detect fraud and ar-

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 T. O. Ombati

rest the transactions before completion (Trautman, 2015). In addition, Traut-

man further indicates that performing financial transactions without requiring
the customers to reveal crucial financial information such as debit and credit
card details provides a better opportunity to minimize fraud in e-commerce.
According to Chin and Liu (2004) risk in real estate websites can be reduced
through the efforts of a good website manager. They argue that the website
manager has the sole responsibility of either accepting or rejecting a property
listing before the same is listed on the real estate website. If the website manager
follows down the laid down procedures in differentiating between good and bad
lists of properties, then it is possible to reject lists that do not reflect the actual
conditions of the listed properties.
One of the old proven best practices in managing risk in real estate websites
and transactions is through avoidance of incomplete and slanted information in
the e-commerce real estate property management systems. In every market
transaction, there are three distinct activities that must be carried out and the in-
clude gathering relevant information, formation of a contract and trade settle-
ment (Lee & Clarke, 1996). Lee and Clarke further suggested that there are two
important elements that can eliminate information asymmetry in real estate
transactions and include some standards for property ratings and using trusted
local parties to inspect and evaluate properties.
Chin and Liu (2004) introduced the transfer of risk mitigation strategy as one
of the best practices in real estate risk management. They assert that buyers and
sellers in real estate transactions may consider buying insurance especially in
cases where the buyers are interested in making pure electronic transactions. By
involving insurance, the risks that may be associated with conducting electronic
transactions will definitely be hedged out.
According to Westland (2002), one of the ways through which risk in real es-
tate property management e-commerce platforms can be dealt with is through
building trust between the buyers and sellers. Westland asserts that it is the re-
sponsibility of electronic markets such as real estate e-commerce platforms to
decide measures to be undertaken when buyers and sellers fail to perform their
obligations or even provide fraudulent information. In such situations the mitiga-
tion measures proposed by Westland (2002) include arbitration and insurance.

2.3. Critical Review of Literature and Research Gap

Most of the studies available on the risks prevalent in real estate property man-
agement e-commerce systems seemed to have a narrow scope thus identifying
only very few risks yet there are a myriad of risks facing this industry. Studies
such as Chin and Liu (2004) and Trautman and Harrell (2016) only mentioned
less than 3 types of risks facing the real estate property management e-commerce
systems.
I was further clear from the studies reviewed that majority of the studies
looked at context specific risks in real estate property management e-commerce
systems. Tu and Meredith (2015) and Westland (2002) are a few examples.

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T. O. Ombati

Therefore no study attempted to have a universal and global view of risks preva-
lent in real estate property management e-commerce systems as well as the risk
mitigation strategies.
From the studies reviewed, no study had made an attempt to provide a con-
clusive summary of the risks prevalent in real estate property management
e-commerce systems and the best practices in risk management. This is the gap
the study sought to bridge.

3. Methodology
The paper systematically reviewed various articles on risk management in real
estate property management e-commerce platforms. While reviewing literature,
the researcher relied on online search engines such as the American Society of
Civil Engineers (ASCE) library, Taylor & Francis Online, Emerald Insight,
Science Direct, Web of Science and Scopus databases (Ullah, Sepasgozar, &
Wang, 2018). In doing this, keyword and semantic searches were applied in at-
taining the required literature. The study approach involved use of keyword
searches, screenings and categorisation (Ullah, Sepasgozar, & Wang, 2018).
Keyword searches applied the following content word(s) “e-commerce in real
estate”, “real estate”, “risks in real estate e-commerce platforms,“best practices in
risk management in e-commerce real estate”, e-commerce and Real Estate” and
management of real estate using e-commerce”. A total of 250 articles were ob-
tained which were systematically filtered thus remaining with 25 which were re-
levant to scope of the study.
In this paper, the researcher, with the help of a research assistant conducted a
thorough literature review for a period of two months. In ensuring dependability
and validity of the review process, the researcher applied the following criteria:
clearly formulated research questions; set a clear inclusion and exclusion criteria;
selected and accessed the required literature for the study. Content analysis was
used in analyzing the data collected from empirical studies since it was qualita-
tive. The information collected was then categorized into the two objectives of
the study. It was further presented in form of tables

4. Findings
The purpose of this study was to investigate risk management in real estate
property management systems. The study sought to achieve two specific objec-
tives: to establish risks prevalent in adoption of electronic commerce in real es-
tate transactions and to explore best practices in risk control inherent in elec-
tronic transactions in real estate sector. Through the use of secondary data, the
following findings were obtained.

4.1. Risks Prevalent in Adoption of Electronic Commerce in Real

Estate Transactions
The research conducted a detailed review of literature on the empirical evidence

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 T. O. Ombati

collected by other researchers on the risks prevalent in real estate property

management systems. The findings were summarized and presented in Table 1
below.

Table 1. Findings on risks prevalent in real estate e-commerce.

Authors Research topic Key Risks Identified

Fraud in e-commerce transactions is one among the

E-commerce and electronic payment
Trautman (2017) serious risks businesses have to contend with.
system risks: Lessons from Paypal
Another risk is compliance to existing and new laws.

Misleading information is a risk in the real estate

e-commerce platform.
Risk management in real estate electronic
Chin and Liu (2004) Bad listings may find access to real estate websites.
transactions
Properties not meeting expectations may be listed if web-
site managers are not keen.

Study identified the following risks:

Virtual Crimes, Real Damages: A Primer
Pinguelo and Muller economic or foreign spying, malicious employees who pose
on Cybercrimes in The United States and
(2011) a threat to the business, spamming, phishing, hacking of
Efforts to Combat Cybercriminals
systems and email extraction programmes.

Risks identified by the study include:

Laws of the home country;
Too Complex to Depict? Innovation,
International laws due to geographical expansion;
Hu and Henry (2011) “Pure Information”, and the SEC
Money transfer laws;
Disclosure Paradigm, 90 TEX.
Money laundering laws;
Terrorism financing laws.

Long, Messages from the Front: Hard

Risk identified was war on protection of intellectual
Long (2007) Earned Lessons on Information Security
property in cyberspace
from the IP War

Risks established by the study include:

Cybercrime Cyberterrorism;
Protecting Intellectual Property and
Crime that is committed electronically, Security of the
Privacy in the Digital Age: The Use of
Scott (2016) e-commerce infrastructure, Protection of intellectual
National Cybersecurity Strategies to
property;
Mitigate Cyber Risk
Internet governance;
Jurisdictional disputes.

Study established risks such as:

Litigation due to violation of laws;
Biener, Eling and Wirfs, Insurability of Cyber Risk: Litigation due to violation of policies on privacy and
(2015) An Empirical Analysis disclosure of customer information;
Fines resulting from violation of laws such as consumer
protection legislation.

Risk identified by the study is overreliance on the internet

If internet providers make any changes e-commerce
Rethinking Virtual Currency
Tu and Meredith (2015) platforms will be affected;
Regulation in the Bitcoin Age
If they develop policies restricting access then business will
be adversely affected.

Source: Empirical research Findings.

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T. O. Ombati

4.2. Best Risk Control Practices in Real Estate E-Commerce

The study further sought to establish the best risk control practices in real estate
e-commerce. Several papers on this topic were reviewed and a summary of the
most relevant ones is provided in Table 2 below.

Table 2. Best risk control practices in real estate e-commerce.

Authors Research topic Main Risk control practices identified

Building trust among buyers and sellers.

Use of arbitration to sort out issues between
Westland (2002)
buyers and sellers.
Adoption of insurance in case of any risks.

Eliminate information asymmetry in real

estate electronic transactions through:
Proper information gathering.
Lee and Clarke
Use of local trusted agents to evaluate
(1996)
property before transaction is completed.
Adopting some specific standards for
property ratings and listing.
Transfer of risk through adoption of insurance
especially where the buyers and sellers are
Risk management in
Chin and Liu interested in a pure electronic transaction.
real estate electronic
(2004) Better website management through a
transactions
knowledgeable website manager’s effort to
reject bad listings.
Enhancing security of user information
through the adoption of privacy enhancing
technologies (PETs).
E-Commerce-Study of
Enhancing the trust users have with the
Privacy, Trust and
Gupta and e-commerce platform through improvement
Security from
Dupey (2016) of privacy and confidentiality, company
Consumer’s
reputation, payment methods offered by the
Perspective
company, ease of use and website design.
Protection of e-commerce infrastructure
from damage and vandalism.

Source: Empirical research Findings.

5. Recommendations
Real estate property management e-commerce systems just like other e-commerce
platforms face a myriad number of threats. One such risk is breach of privacy
through unauthorized access to user information. The firms operating real estate
property management systems must ensure that they have in place privacy en-
hancing technologies in order to protect the privacy of user information. This
will be one of the ways of improving users’ trust in the real estate e-commerce
systems.
It was evident from the findings that information asymmetry between buyers
and sellers of properties is also a common risk that needs to be dealt with. It may

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 T. O. Ombati

be necessary for real estate property management systems to include the services
of local trusted agents (who are internationally certified) to carry out evaluation
of property before the buyers make decisions on payment.
Theft and fraud also featured prominently as major risks, especially in situa-
tions where payments for properties have to be made electronically. Some pay-
ment systems may lead to disclosure of user information thus increasing the
chances of theft and fraud. It is important for real estate property management
system owners to carefully evaluate payment options and identify the ones that
have a high degree of privacy and partner with them. This will enhance user
confidence and reduce incidents of theft and fraud.
Over-reliance on internet for real estate property management e-commerce
systems to operate was also considered a major risk. It may be necessary for the
firms involved in real estate property management e-commerce to put in place
remedial measures on how to protect themselves from any changes that may be
introduced by internet providers.

6. Key Contributions
The study has been able to shed more light on the risks that are faced by most
real estate property management systems globally. It has provided an elaborate
discussion of these risks as well as their sources.
The study has also been able to establish the risk management strategies that
have been applied by a number of real estate property management systems to
mitigate against the risks they face. This is a very important contribution to-
wards assisting new and existing real estate property management system own-
ers to understand how to handle risk.

7. Limitations of This Article

This was a literature-based study which examined studies that have been done in
the past. Empirical evidence from past studies forms the foundation of the pa-
per’s findings. The accuracy of the findings, therefore, is limited to the empirical
evidence from the papers reviewed.
The findings of the study are relevant to the various contexts in which they
were conducted. They may not be directly applicable to other contexts.

Conflicts of Interest
The author declares no conflicts of interest regarding the publication of this pa-
per.

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