Real Estate Rental Services: Clearing up Confusion

Potential tenants and new investors often have questions regarding real estate rentals, ranging from who provides rental services to how commissions are paid and rents are determined to …

Potential tenants and new investors often have questions regarding real estate rentals, ranging from who provides rental services to how commissions are paid and rents are determined to how to renovate a newly-acquired rental property. The following clarifies some of these issues.

Who pays the commission?

Commissions can be paid by the landlord or the tenant. Investors and renters should research the standards in their town or county. For example, in New York City, commissions are called fees and are generally paid by the tenant. In Connecticut, on the other hand, commissions are generally paid by the landlord.

If an investor is moving into a new area with plans to buy a rental property, it is important for them to call several agents and ask who pays the fee and what the fee is. They should also inquire about the MLS that exists in the area. If much of the property is unlisted, then they might have to agree to pay a fee to the brokerage they employ, even if they find and subsequently lease an unlisted property. Investors should make sure they know under what circumstances they will pay a fee and when no fee would be due.

What rental listings services are covered by a brokerage or agent?

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Generally classified newspaper advertising, MLS and Internet listings, administration, showings, market research and updates are included in the basic list of brokerage rental services.

Many agents, however, do not provide rental services and those who do are not always knowledgeable about rental details such as floor plans, building management and seasonal fluctuations in pricing. Some agents choose not to do rentals for a variety of reasons–one reason is that, after the numbers are calculated, the hourly compensation can be low. However, many agents incorporate rentals in their core business with the hope that rental customers will eventually seek their services to buy or sell a property. Rental services are also provided by some agents who 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?

  • Investors can benefit from working with an agent who can find them a great rental property by putting their detailed knowledge of both the local real estate market and the local rental property market to use.
  • Renters can access 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 base about all properties in a specific market. Agents familiar with all residential properties (those that are income producing and those that are non-income producing) generally know how these properties impact and are impacted by the local economic conditions and trends such as 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 for 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 who 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 available properties are the foundation for pricing. New construction and demographic shifts should also be analyzed when determining a property’s price. 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 one month free, security discounts or free parking. Also note that managed buildings can have extra fees, such as for utilities, or pet fees or deposits. It is important to research both listed and unlisted rental prices—these can generally be found in a local newspaper—when providing market and pricing updates to both renters and property owners.

Can an agent guide a customer regarding renovating a rental?

A full service agent should be able to show competing rentals in the area so investors can select which renovations 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 price range that a particular 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.

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