Getting Paid Now and in the Future (Part 4 of 5): Rentals

Will the possible broker commissions changes impact your business at all?

See this linked WSJ article with some differing perspectives.

How will the potential changes to our business impact rentals?

One segment of the real estate business that I have not seen any mention of with regard to the class action and DOJ lawsuits is the rental business. Specifically, rental broker commissions don’t seem to be under scrutiny at all…as far as I can tell the entire dialogue (and lawsuits) is around for-sale property commissions.

Is this good news for brokers engaging in rentals?

On the surface, I think it just means there likely won’t be any specific new regulations or changes in the near future for broker commissions on rental business.

BUT, I think it’s important to observe and learn from what’s happening on the sales side of things, and strive for best business practices with our rental clients and transactions going forward.

What does this mean?

The crux of the broker commissions lawsuits focuses on sellers expressing their brokers demonstrating a lack of transparency, communication and perceived options with regard to offering a co-op commission. Think about this same practice on your rental business…are you making a clear effort to disclose and explain to your landlords there are two commissions paid on rental transactions? Think about the opportunity to pitch 10% on the listing (or STRs) and 10% for the broker representing the tenant, and why its beneficial to the landlord to offer “both 10’s”.

Just like for-sale listings we (ASSIR and our brokers) don’t get paid anything for taking a rental listing. ASSIR and our brokers get paid commissions upon successful leases, and our (ASSIR’s) portion of those commissions go to building, maintaining and servicing our rental business (as well as our overall company staff, broker education and overhead expenses – such as marketing, advertising SIR affiliation fees, etc.). Of course the goal is to also make a profit after all of our expenses, just like the our brokers engaging in rentals hope to generate income for themselves.

One difference between sales and rentals is that for rentals its customary in our market to charge an administrative fee upon the signing of a lease. The admin fee is what our company gets paid to administer each lease transaction – there is a lot of heavy accounting lifting, receiving/disbursing funds and transaction management processing that occurs with each lease.

With a sale transaction the handling of the money and a lot of the administrative duties to get to closing are handled by a title company (who also gets paid a fee for their services). It’s important to be able to explain to your clients the difference between lease commissions that are paid for successfully pairing tenants & landlords versus the administrative fee which is paid to ASSIR for servicing the administrative duties of the lease (similar to a title company with sale transactions).

I encourage you all to “know the business” and be confident with your ability to earn the commissions you deserve, and also to explain the purpose of a rental admin fee (by the way, the admin fee is what’s helping us fund the hiring of a new position – “rental transaction coordinator”!).