Real Estate Rentals & Broker Fees
Posted on 20. Jun, 2009 by Joshua Ferris in Blog, Industry, real estate
I’ve been handling a lot of rental transactions lately and one thing I always ask before getting started is “Have you rented a home through a broker in the past?” This seemingly innocuous question seems to drive responses from a simple “Yes” to a “No, why, do I have to pay for something?!”
As a renter myself, I know what it’s like to try to find a decent rental these days. Either they end up being overpriced or in a bad area or just don’t exist. In the suburbs especially, a good rental is very hard to find. You could rent in an apartment community but then you’re stuck with single level living and possibly less than desirable neighbors. The barrier for entry for apartments is significantly lower than, say, owning a home where you need a substantial down payment to buy the home. More often than not a homeowner will use a real estate broker to market and find a renter for their home.
The great thing about privately owned rentals is that you are more likely to find a home in a community of homeowners who take pride in ownership and want to maintain the quality of the neighborhood to improve their resale value should they need to sell. This is the key difference between apartment buildings and owning or renting a home owned privately.
This brings me to the golden egg of rentals: rentals available through real estate brokers. When a broker takes over the process of marketing the rental, finding and qualifying a tenant and, finally, getting a good tenant into the home it takes a lot of time. And money.
The issue that most first time broker rental clients seem to have is reasoning the cost of paying a broker fee to move into one of these rentals. I’m a firm believer that this is due to the fact that there is no consistency in the cost of renting through a broker. In the suburbs of New York City the tenant is expected to pay the brokers involved in a rental transaction a fee in the amount of one month’s rent in addition to other expenses associated with the initial rental. In Manhattan the tenant could be expected to pay 10% or more in commissions to obtain a rental. And then there are instances around the country where the would-be landlord pays for all broker fees.
Confusion aside, I think it should be noted that broker rentals are an option. You’re not required to find rentals through a broker but there are benefits to doing so such as:
- The homeowner is verified and brokers go through the motions of learning more about the home, marketing the property and handling the pricing and negotiations for the home. Most for rent by owner or craigslist ads aren’t going to give you the insight on pricing that a broker would. Further, with the recent increase in rental scams on sites like craigslist, finding a rental through a broker can be a more secure experience.
- A broker will sort and analyze the rentals in their MLS and then send you the homes that meet your needs.
- Rental brokers have experience with different condominium communities and may have seen the property in question in the past. This will give you greater insight into each rental and save you time when looking for your next place.
But, as I mentioned, broker rentals aren’t your only option. You can still search for rentals using more DIY methods like craigslist. We also have a list of apartment communities with no broker fees here. You won’t have the professional oversight or potential negotiation power that you would get with a real estate broker but that’s why you’re paying for the broker in the first place.
Interesting article. I had a call today from Colorado from someone wanting to rent (or rent to own) a lakefront property here in Madison WI because they have two homes on the market and cannot buy. We do have some lakefront property that has been vacant for a long time. The question is how to approach the seller or seller’s agent on these questions and make it work for everyone involved. Our market is not accustomed to rent to own or lease option scenarios and my experience with it to date has been that sellers are either totally against it or only slightly interested. I have to admit, I’m not keen to get involved either. Seems the compensation is rather iffy and/or the timeframe is extremely prolonged. But it may be a necessity if things get worse or stay the same for a long time before they get better.