How real estate agents get paid for rentals

by Corben Grant on 04 Jan 2022

As a real estate agent, your main job is to help connect buyers with sellers and help them close a deal. Most of the time, this means assisting in the sale of a property, though this isn’t always the case. In some instances, a real estate agent may, instead, help a client to rent their property, or help a client find rental properties to live in.

This is a less common job for real estate agents, though many real estate agents are making money in this area. While most people choose to sell their homes with a real estate agent, this is not the case for rentals, and most landlords find their tenants through other means. However, there are some circumstances where either party needs a bit of extra help and real estate agents happen to be the perfect people for the job.

When working with rental properties, there is no large sale price from which you can take a commission, so your payment will usually be lower for these types of jobs. And, since each contract is different, the way you are paid can vary between jobs. Let's take a look at what you need to know when working with rentals as a real estate agent.

Why should agents work in rentals?

Working with an agent is appealing to renters who are having trouble finding a space to rent. This may be for a variety of reasons such as a rental market with very few vacancies, or if the person is looking to rent before moving to a city that is far from home.

Working with an agent is also helpful for tenants who need to find a space to live quickly as agents can help find properties and close deals faster than a renter may be able to on their own. This means less work for the tenant, and at times, there is no cost to them either. Agents can also provide high-quality advice about neighborhoods and homes that will prove valuable in the selection process. Tenant agents also have access to the multiple listing service (MLS) where they can find rentals that you may not find on your own.

For landlords, though they may have to pay the commission of the agent, there are also benefits for working with a real estate agent for rentals. For one, it helps them to find serious prospective tenants who are more likely to be good renters. It also takes some of the burden off of the landlord if they have many properties to fill.

For agents, rentals are sometimes less popular because they tend to pay much lower commissions. However, depending on the area, there may be much more rental activity available to work with if finding a home sale is proving difficult.

Many agents will be more attracted to tenants looking at spaces with higher rent, which means a larger cut for themselves. Such properties tend to attract more serious clients, who may be looking for something specific and need the extra help of an agent to find the space that is just right.

What sort of payment types are there?

Real estate contracts for rentals can vary a lot. Generally, the agent or agents involved in a rental will be paid by the landlord and will agree to a split of the commission. In the event where a single agent represents both buyer and seller, the full commission will go to the agent and their real estate broker. Sometimes the tenant will pay their first month's rent and security deposit directly to the agent who will then take their cut and pay the rest to the landlord.

If you are working to represent a tenant who wants to rent from a landlord who is not using a listing agent, you may not be able to get a commission from the landlord. In this case, your client will have to pay your commission so be aware of this before signing any deals.

Unlike a home sale where you have to wait for closing, the agent in a rental deal receives payment immediately on the signing of the lease. Ultimately, your commission will be negotiable, though some areas have common standards that all deals follow.

Percentage of lease

Some real estate agents charge a percentage of the lease as their payment. This percentage is based on the total value of the lease over one year. So for example, if the tenant pays $2,060 a month, the current average rent for a one bedroom apartment in the city of Toronto, they will pay $24,720 a year. The agent may then take 10%, which would result in $2,470 for the agent.

A portion of the monthly rent

An agent may also take a portion of the monthly rent as a payment. In some cases, this will be a half or a quarter of the first month's rent. In other cases, this can be as high as a full month's rent. This fee will usually be paid by the property owner to the agent, or paid by the tenant directly.

If we look at the example of $2,060 in rent from before, the agent could make up to $2,060, or as low as $515 for a full month's rent and a quarter respectively. A portion of one month's rent is usually the most common payment for an agent working with rentals, and a full or half month's rent are the most common splits.

How can the market affect payment?

The market in which you are working can have an impact on how you get paid for rentals and how much you get paid. For example, in a small city with low rental demand, you may make less money as a rental agent simply because your services are not as in demand and the rent may be lower on average.

By contrast, in a large city with lots of demand, rent will likely be higher and more tenants will need help finding spaces. In this case, you can make more money, though there may be more difficulty in finding an appropriate property. In cases with really tight rental markets, the tenants will also be more willing to pay you to help find a property even if the landlord doesn't.

Should you work in rentals as a real estate agent?

Generally, most real estate agents prefer to work with real estate sales as the commissions are much higher. How viable working in rentals is for you will depend on your market and how quickly you can make deals. If you are in an area with very high rent values, then the portion you receive for doing a rental deal will be relatively higher. At the same time, areas with high rent are sometimes in that situation due to very high demand. If there is a lot of demand, there may be more people looking for rentals, and therefore, more deals to be made. On the other hand, low vacancies mean you will have a harder time finding rentals for your clients as well, so it may not mean more money ultimately.

If you find yourself with free time between sales, it may be worthwhile to take on some of these jobs to keep yourself busy and make a bit of money between sales. It’s possible to make money working exclusively as a rental agent, though you will need to focus on the properties that bring in the most money - that is, the ones with high rent and high commissions. You will also be most successful if you work in a market that has a lot of people looking to rent.

The good news is, if you are curious about working in the rental market, these deals can be a lot quicker and easier than a regular sale, and if you decide it’s not for you, you won’t be committed forever.

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