Renters and new investors often have questions regarding real estate rentals, from who provides rental services, to how commissions are paid, how rents are determined, and even how to renovate a newly acquired rental property. The following clarifies some of these issues.
Who pays rental commission? Commission can be paid by the landlord or the tenant. In most states, commissions can’t be collected by both parties without full disclosure to both parties. It is important to know what the standard is in your town or county. For example, In NYC commissions are called fees and are generally paid by the tenant. In CT commissions are generally paid by the landlord. If you are moving to a new area, it is important to call several agents and ask who pays the fee and what the fee is. You should also inquire about the MLS that exists in the area. If much of the property is unlisted, then you might have to agree to pay a fee to the brokerage that you employ, even if you find and lease an unlisted property. Make sure you know under what circumstances you will pay a fee and when no fee would be due. The commission is usually paid to the buyers agent and is split up in a similar fashion as sales commission, in four ways to include two agencies and two agents. For example, a $1600 commission would generally a lot $400 to each of the four entities. These are pre-tax dollars.
What types of rental services are covered by a brokerage or agent for landlords? Generally market analysis, internet advertising, MLS listings, administration, project management, touring, market research and reporting are included in your basic list of brokerage rental services. The same services are generally provided for a rental listing as are provided for a rental, however, less expensive and less time-consuming media can be effective for rentals.
Do all agents provide rental services? Many agents do not provide rental services and many are not knowledgeable about the rental market. Some may lack knowledge of important factors like floor plans, building management and seasonal fluctuations in pricing. Some agents choose not to do rentals for a variety of reasons. After the commissions are paid, compensation from rentals can be very little when calculated on a per hour basis. However, many agents incorporate rentals into their core business with the hope that rental customers will eventually seek services to buy or sell. Rental services are also provided by some agents that don’t generally provide them as a courtesy to loyal customers.
What is the advantage of choosing an agent that does rentals as part of his or her business services?
- Renters can assess an agent’s true work style and determine whether they would feel comfortable employing that agent for a sales transaction at a future date.
- Rental research adds to an agent’s knowledge about all properties in a specific town. Agents familiar with all residential properties (income producing and non-income producing) generally know how these properties impact and are impacted by the local economic conditions and trends (new jobs, demographic shifts, attraction of corporate relocation clients, etc.
- Knowledge of rental prices is essential to pricing and selling residential investment property, specifically condominiums. Rental income impacts that value and demand for condos much more significantly than houses.
- Ability to save time and close: Agents aware of the various layouts and options in a community are more likely to match the right renters with the right properties. Agents that are ignorant of the rental inventory can spend many hours touring clients without closing a deal. This is frustrating for the agent and the customer.
How are rental prices determined? Similar to pricing a home for sale, recently rented properties and currently available properties are the foundation for pricing. New construction and demographic shifts should also be analyzed. Another piece of important data is the historical price differential between managed rentals in an area and those owned by individual landlords. Individually owned properties can be overlooked in the analysis if they are not common in the area. Managed rental prices can change from day to day, so these properties should be surveyed regularly to stay abreast of reductions and specials, such as a one month free offer, security discounts, or free parking. Also, note that managed buildings can have extra fees, such as a water charge, disposal or pet fee. It is important to research listed and unlisted rental prices (generally found in a local newspaper) when providing market and pricing updates to customers and landlords.
Can an agent guide a landlord regarding renovating a rental? A full service agent who provides rental services should be to guide landlords in making the renovations that are necessary to achieve market rent. An experienced agent should also provide the insight required to avoid over-renovating and wasting money on improvements that will not bring increased rent in the short or long-term. For comparison, it is important to look at rentals both above and below the rental market range that a property demands.
What happens if a renter wants to buy the property he or she is renting? Generally, a one year lease will have a provision that a full sales commission is due if the renter buys during the term of a lease. or during the year following the lease end date. The exact commission is usually predetermined and agreed via a line item in the lease, by the landlord and the listing agent.