Commission Agreement
for Sourcing Tenants

No commission agreement is ever cast in stone - there must always be room for negotiation between the real estate agent and the client.

And to complicate matters a bit more, this finder's fee or brokerage fee is sometimes payable by the landlord and in other instances payable by the tenant.

It all depends on the location of the rental property and whether there is a shortage or oversupply of stock for rental agents to work with. Oh, and the time of year can definitely play a role here too.

We've compiled a finder's fee / commission agreement specifically tailored for landlords or homeowners who need the marketing services of an estate agent, but not the subsequent Property Management Contract with the whole gamut of services typically offered.

Sidebar: If you need a commission agreement for the promoting or goods of services of a company as an agent, then our free Referral Agreement will be more suitable.

Be sure to also work through our notes further down the page where we go through a number of helpful tips and answer many questions typically asked by both landlords and tenants!

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Legal Guidelines for this Commission Agreement:

Landlord Prerogative to Reject or Accept a Rental Application

As landlords we always reserve the right to have the final say whether an application is approved or rejected! We will not rely solely on an Agent's opinion whether a tenant qualifies - after all, it is not the agent's investment property and therefore not their headache if the tenant turns out to be a nightmare.

We insist on having access to all credit reports, previous landlord information, bank statements etc. If the tenant does not wish to disclose this information to the landlord, then we consider the application as incomplete and we have reasonable grounds to reject the application.

Should You Give Sole Mandate to Rental Brokers?

Our commission agreement stipulates non-exclusivity i.e. an open mandate. An agent may offer a favorable rate to the landlord provided they have sole mandate to market the property. It's up to you to decide if this will be to your advantage or not.

For example:
We often find ourselves using the same agent time and again because they are the preferred/approved agents for a complex e.g. retirement village. Establishing a good business partnership is a win-win situation for both landlord and agent and we gladly give them sole mandate.

And just as often do we deal with the same relocation company, because they know we value our tenants and they therefore have confidence recommending us as landlords. Although we do not have a sole mandate agreement with them, we notify them first if an apartment becomes available and offer them first right of refusal.

Are there Refunds from Agents for Early Termination of the Lease Agreement by the Tenant?

Will the agent refund their initial fee pro-rata? The agent may offer a free pro-rata replacement, but who knows whether they'll be able to find a suitable replacement timeously?

If the tenant paid the initial agent's fee, then the landlord is not out of pocket. However, if the reverse is true, there should be a clause that the tenant will reimburse the landlord for the pro-rate finder's fee/commission. You need to make provision for this in your commission agreement with the agent as well as in your rental agreement with the tenant.

Will you have a Once-Off or Recurring Fee Agreement with Your Rental Agent?

Agents would like to make landlords liable for a further (albeit reduced) fee should the tenant extend the lease in a particular property.

Agents would also like to collect sales commission should the landlord end up selling the property to the tenant.

Our commission agreement stipulates a truly once-off finder's fee. Once the placement of the tenant is done and fees paid, there shall be no further obligations to the agent at a future date.

Who Collects the Deposits and First Rental from the Tenant?

Some agents stipulate that they will collect the security and other deposits as well as initial rental amounts. After deducting their fees, they will then pay the balance over to the landlord.

That is all fine and well, but we do not reserve a property for a prospective tenant until we receive a securing deposit cleared through our bank.

Rental agencies may also offer an interest bearing trust account where the tenant's deposit is kept until termination of the lease. Note that it must then be specified that the agent needs a written release note from the landlord prior to refunding any monies to the tenant.

As landlords we've created a separate investment account specifically for this purpose and prefer to retain refundable monies in this interest bearing account.

We prefer the tenant to pay ALL fees to ourselves and we then pay the agent their fee upon presentation of their invoice. It just makes for easier accounting of the deposit amounts and expenses of the rental portfolio.

How Much is a Broker Finder Fee?

The fees will obviously vary depending on the city or location. Brokers are always looking for stock so all fees can (and must) be negotiated.

We've had agents initially quoting an 8% finder's fee (of the total amount of the lease) but were more often than not prepared to settle for 5%.

Or it may be calculated, for example as 25% of the first month's rental - regardless how long the lease is for.

Do your homework to get an idea of the average fees charged in your area and which services are included for the fee. Then decide which services you need the agent to perform and which you would prefer to manage yourself. Thereafter you can come to an agreement on fees with the agent.

More about the various property management services in a moment...

What is a Realtor Referral Fee?

This generally pertains to property sales and is an interaction between two agents where one may refer a potential property buyer to another agent and if it results in a sale, they share the agent's commission.

Some licensed agents use this as their sole business model i.e. they only act as middlemen who introduce or refer clients to an agent (with a suitable property) who will do the actual property marketing and viewing. If that results in a successful transaction, they earn a referral fee. This is obviously not what we're dealing with here on this page.

However, there may be a similar interaction in the rental property market. A renter may sign up with a rental broker who may find a suitable property listed with another agent. The two agents will then share the finder's fee - whether paid by landlord or tenant - on whichever percentage basis they agree to do so.

This should not result in an increase in the fees to either landlord or tenant!

Who Pays the Rental Agents' Finder Fee?

In some locations the whole fee will be payable by the landlord and may typically be advertised as a "no-fee apartment" to prospective tenants. This will quite often be the case where there is an oversupply of accommodation and the landlord is struggling to let his property.

Conversely, it may be paid by the tenant who is effectively hiring the agent to find him/her a suitable apartment.

The fee to the tenant could be anything really, even up to double the first month's rent - depending on the location and the market. If there is a low supply and high demand of rental property, enlisting the help of an agent can come at a steep price. In addition, there may also be credit check fees, lease preparation fees, admin fees and fees by any other name. The agent must disclose the amounts charged up front and as tenant you must negotiate!

Sidebar: Incidentally, tenants should also screen landlords! Ask the agent to assist - you're paying a fee remember!

• Speak to current and previous tenants to ascertain how quickly the landlord effects repairs, refund deposits etc.
• Verify ownership of the property for rent - e.g. utility bill, statement from Homeowner's Association or Body Corporate, Letters of Authority for a Trust.

And then there is a third variation where the fees may be split between landlord and tenant. Beware unethical brokers that try to collect the full fee from both parties.

Duties of a Broker of Rental Properties

There are advantages and some disadvantages to using a rental broker or agent.

More than anything, it's the agent's job to save time for both parties:

• Don't show properties that do not meet the tenant's requirements, in the hope that the tenant may somehow go for it.
• Don't present prospective tenants that have not been pre-qualified, to the landlord. Pre-qualifying also reduces the inconvenience to the occupant of a rental unit by cutting out unnecessary viewings.

Rental agents should have insight and knowledge about the market and can offer advice on the going rental rate for similar properties and what the market conditions are like i.e. shortage or abundance of rental stock.

Rental agents should also be able to advise the landlord on work or refurbishment that should be done to the rental property to attract renters.

A competent agent should be familiar with the landlord tenant law in their area and able to review the lease agreement to ensure it complies with applicable laws.

They may also be able to offer legal assistance when it comes to evictions, penalty fees, outstanding rentals etc.

If you make use of their ingoing and outgoing inspection service, you have an independent third party to call upon should there be a dispute about damages to the property.

Sidebar: For tenants it may also offer peace of mind knowing that they too have an independent party witnessing the inspections to call upon should a landlord make unreasonable deductions from the security deposit. They may also prefer having the security deposit held by a reputable third party.

They have a broad client base and if you have a furnished unit, their connections with Diplomatic Departments, Corporates and relocation companies could prove invaluable.

The only disadvantage really of making use of a rental agent is that it comes at a price. However, if it helps a landlord avoid even just one month's vacancy, it is well worth it!

Additional Services to Make Provision for in your Commission Agreement

If you are comfortable doing most of the initial placement and subsequent management duties yourself, then you can pare down your service agreement as we did in our Commission Agreement template at the top of the page.

However, you may want to make provision for any number of the following, some of which may attract additional fees charged by the management company:

* Photographing the property for advertising purposes if you do not already have quality photographs to give them
* Advertising the property and facilitating all viewings
* Supply and completion of Application Forms
* Perform credit checks, confirm employment and salary
* Reference check with current and previous landlords of the prospective tenant
* Obtain bank statements from rental applicant
* Ingoing and outgoing inspections and capturing of photographic records of the general condition, inventory and any pre-existing damages like cracked tiles, chipped laminates etc.
* Supply a lease agreement and facilitate signing by all parties

Property Management Contract

If you find yourself adding the above listed duties to your commission agreement as well as these mentioned below, you are actually in need of our comprehensive (and free) property service fee agreement to address it all.

* Pre- and/or post occupation cleaning
* Collection of rent into a trust account (interest accruing to tenant), issuing of letters of demand
* Payment of monthly charges e.g. levies, utilities, rates and taxes
* Facilitate repairs and maintenance - accompany and supervise repairmen and pay fees
* Do interim inspections (normally quarterly) and checking of moveable inventories
* Sending timely notices of upcoming lease expiry to both landlord and tenant
* Do lease extensions or renewals
etc.

Head on over to our page dealing with Property Management for more tips and guidelines and to see how much the various services will cost you.

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