Real estate agents are paid for rentals by the landlord. Typically one month’s rent or a percentage of the lease value. The landlord’s agent pays the renter’s agent an agreed upon portion of this fee. Usually half or less.
The landlord negotiates leasing commission terms with their agent before listing it on the market. When a renter’s agent brings a tenant and submits an application, they are also negotiating their fee with the listing agent. This is because they are usually being paid out of the listing agent’s commission. The pay structure goes first to listing agents. The listing agent negotiates whether it will be a flat fee (usually one month’s rent) or if it will be a percentage of the total lease value.
Looking for more? In this article, we spend time diving into all the different ways real estate agents earn income.
How Are Renter’s Agents Paid for Rentals?
The agents representing renters then negotiate with the listing agents how much they will be paid. If there is a tenant representation agreement outlining a minimum compensation required, the renter client will often pay the difference.
It is not uncommon in highly competitive markets for landlords not to pay commissions to agents. In these markets, the renter is expected to pay the commission for both their agent and the landlord’s listing agent.
1. Percentage of the Total Lease Value
Although not as common as the next method we will discuss, it is not uncommon for commercial rentals to pay real estate agents a percentage of the total lease value.
This is advantageous to everyone involved when working with large numbers. Properties with bigger leases usually cost landlords more to sit empty, so they are willing to pay top dollar to skilled agents bringing them tenants.
For a frame of reference, it is common for commercial leases to sometimes be 5, 10, or even 20 years long.
Example: Percentage of Lease Value Commission Calculation
In our example, let’s use a 5-year lease with a landlord paying a 6% total commission.
- If the monthly rent is $4500, the annual gross rent is $54,000. Multiplying that by 5 years, you arrive at a total lease value of $270,000.
- By multiplying the total lease value of $270,000 by the commission of 6%, you get $16,200. This $16,200 goes to the listing agent, who splits it with the tenant’s agent, who brought the lease.
This will occasionally take place with residential leases but is far more common on commercial properties.
2. One Month’s Rent As a Fixed Fee
The most common way for real estate agents to be paid for residential rentals is a fixed fee of one month’s rent. This is less common in commercial real estate.
As a listing agent, you will be negotiating this as your fee. Out of this fee, you will also pay the tenant’s agent an agreed-upon fee. Sometimes, landlords who want discounted services will attempt to negotiate a discounted rate. For example, if they want you to lease their property out for $1000/month they will want to pay you $500-750.
Knowing what your overhead costs are that do not get passed along to the landlord, conveying your value is important. As advertising costs increase, so do your listing fees.
How Does This Affect a Tenant’s Representative
As a tenant representative, this should be in the back of your mind when showing rentals to clients. If the listing agent is being paid one month’s rent, know that your pay will likely be half of that amount (or less).
If the average rent of the properties you are showing is on the lower side and you are commuting long distances for multiple showings, consider including per-showing or mileage costs with your renters. It is very easy to lose money in larger cities when representing renters.
What About Renters Paying Their Agents?
It does happen, but it’s fairly rare for renters to pay their agents. When it does, the agent negotiates with them upfront to ensure their agreement’s terms are ironed out before showing them properties.
Having a signed buyer/tenant representation agreement on hand before touring properties with tenants is incredibly important. By requiring renters to sign an agreement agreeing to pay you if the landlord doesn’t, and if they back out before signing a lease, your time and money invested are covered.
