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Recently I was told that when you rent a rental property the party renting the property must pay this fee (commission ) not the property owner. Real or false.
Depending on the rental market, it can be handled as it works best for the parties. Everything should be in writing and included in the rental contract.
In Costa Rica it is customary that the landlord pays a commission, mostly in case of vacation rentals where the daily-weekly-monthly rate is higher than in case of long term private rental. Vacation renters normally pay in advance.
In Germany it is customary that the renter pays commission to the broker (max. amount allowed by law is 2 monthly rates). This is to protect the landlord in case the renter moves out after a short rental period.
In rare cases, if there is more rental space then renters available in a certain area and the landlord has a hard time finding any renters, the landlord pays the broker a commission (no limit as of amount).If the landlord wants to pay the commission but wants to make sure that he does not get “screwed” he can agree with the renter that the renter pays the commission first and after termination of the contract (or X years) the landlord reimburses the renter.
This would likely apply if you are renting a property that is managed by a property management company, but not necessarily if you are renting from an individual.
First of all, who “hires” the leasing agent? If the owner of the property “hires” the agent to lease his property, represent the owner’s best interest and work on the owner’s behalf, then (unless it is specified and agreed between the owner and agent) it should be the owner’s responsibility to pay the agent. Afterall, the owner never has to pay the agent if the agent doesn’t perform, right?
On the other hand if the renter hires the agent to “go find me a property”, then they must agree in advance on who the agent is to look to for his commission. If the renter demands that the agent receive his commission from the owner, then the agent must disclose that to the owner in advance so as to avoid conflict once the deal is done. In this situation, the agent’s role becomes more of a “transaction agent” rather than representing the exclusive interests of either party.
In other words, agent, owner and renter should all be aware from the start (a) who the agent represents and (b) who is responsible for payment of the commission.
Of course, I am writing this as if the question is to be resolved in a country that has real estate ethics and regulations…….
The normal rental contract in Costa Rica is for three years and the normal rental commission which is paid by the owner of the property to the real estate broker who found the renter is equivalent to one month’s rental.
The renter may also be asked for one month’s rent as security deposit… Which the owner would normally use to pay the commission which is why in many cases, the owner simply refuses to pay back the security deposit to the renter at the end of the rental…
Scott
[quote=”Scott”]The normal rental contract in Costa Rica is for three years and the normal rental commission which is paid by the owner of the property to the real estate broker who found the renter is equivalent to one month’s rental.
The renter may also be asked for one month’s rent as security deposit… Which the owner would normally use to pay the commission which is why in many cases, the owner simply refuses to pay back the security deposit to the renter at the end of the rental…
Scott
[/quote]
Not quite true, the one month security deposit is for the case the renter moves out and does not pay utilities up to date (remember, bills are paid 1 month later in Costa Rica), plus if the renter leaves damages or does not pay the last month of rent, which is quite common because many Tico landlords have the bad habit to not return the depo. and it would be quite expensive for the renter to sue the landlord. So, if the landlord wants to have more backup, he will have to ask for several months of deposit.
Real Estate brokers get approached by both, landlords and potential renters, so in most cases they are dual-agents. So who should pay the commission ? In Germany the landlord lists his house with a broker, potential renters go to brokers office, broker sends them to the landlord. Still the renter pays commission in many cases (I had to, many years ago…)
[quote=”elindermuller”]Real Estate brokers get approached by both, landlords and potential renters, so in most cases they are dual-agents. So who should pay the commission ? In Germany the landlord lists his house with a broker, potential renters go to brokers office, broker sends them to the landlord. Still the renter pays commission in many cases (I had to, many years ago…)[/quote]
We are not in Germany.
[quote=”Danishlis”]Recently I was told that when you rent a rental property the party renting the property must pay this fee (commission ) not the property owner. Real or false.[/quote]
Really, the information you are getting is accurate, but in order for everyone to offer specific advice, it may help if we knew:
how long is the renter going to be in possession of the property?
you used the term “party renting the property” – is it a long term lease, or a short term “vacation rental”?
did the agent have a “listing” on the property?
did any other agent have a “listing” on the property, and if so, did the agent that made the deal go through the “listing agent”?
commission rates vary according to the agreement between the parties (if in contract) and are often “re-negotiated” to help make the deal work, in other words the parties make the ask the agent to reduce their commission and the agent realizes 7% of x is much better than 10% of nothing. I know this happens both here and in the States (and I presume it happens in Germany).
commission rates also vary according to “locally accepted customs”, the type of property (farm, condo, large house, small house, etc.) term, location and other particulars. For instance, a short term vacation rental may command a 10% – 15% commission, as opposed to a long term house rental that may be in the range that Scott mentioned.
So, I guess it is hard to say there is a country-wide “norm”. Even in the States where regulations and licensing prevail, it has been ruled that the local boards cannot publish or regulate commission rates – at least in the 3 states where I hold a broker’s license.
But, just like I said before, we are not in the Germany or the States. Costa Rica is the wild, wild,west of real estate!
[quote=”elindermuller”]Not quite true, the one month security deposit is for the case the renter moves out and does not pay utilities up to date (remember, bills are paid 1 month later in Costa Rica), plus if the renter leaves damages or does not pay the last month of rent, which is quite common because many Tico landlords have the bad habit to not return the depo. and it would be quite expensive for the renter to sue the landlord. So, if the landlord wants to have more backup, he will have to ask for several months of deposit.[/quote]
Sorry but what exactly is “not quite true”?
[quote=”costaricabill”][quote=”elindermuller”]Real Estate brokers get approached by both, landlords and potential renters, so in most cases they are dual-agents. So who should pay the commission ? In Germany the landlord lists his house with a broker, potential renters go to brokers office, broker sends them to the landlord. Still the renter pays commission in many cases (I had to, many years ago…)[/quote]
We are not in Germany.[/quote]
off course not, I am working in Real Estate in Costa Rica and we have such situations on a daily basis. The first half of my statement was regarding to Costa Rica.
[quote=”Scott”][quote=”elindermuller”]Not quite true, the one month security deposit is for the case the renter moves out and does not pay utilities up to date (remember, bills are paid 1 month later in Costa Rica), plus if the renter leaves damages or does not pay the last month of rent, which is quite common because many Tico landlords have the bad habit to not return the depo. and it would be quite expensive for the renter to sue the landlord. So, if the landlord wants to have more backup, he will have to ask for several months of deposit.[/quote]
Sorry but what exactly is “not quite true”?
[/quote]
The statement that the rental deposit is for commission.
You can do it this way if all parties agree, but it is not common.At our property we collect the rent and then we pay the broker a 10% commission – after the property is inspected and the damage deposit is returned to the renter.
[quote=”johnr”]At our property we collect the rent and then we pay the broker a 10% commission – after the property is inspected and the damage deposit is returned to the renter.[/quote]
Is your property a vacation rental ?
If not, the broker has to wait all those years in order to get his commission ? 😯
[quote=”elindermuller”]
The statement that the rental deposit is for commission.
You can do it this way if all parties agree, but it is not common.[/quote]Unless the deposit is required to be held in a trust account or otherwise prohibited from commingling with the owner’s other funds (like is common in states/countries where the practice of real estate is regulated and licensed) – then you really don’t know what the owner does with the renter’s deposit monies, do you?
You say it is not common, but once the tenant moves in and pays the deposit to the owner and starts paying rent to the owner, how do you know that the owner isn’t using part or all of the deposit to pay the agent’s commission? (or fix his car with it? or buy groceries with it? or go on vacation with it?……..)
Unless the agent is also doing the owner’s accounting and or property management and controlling the owner’s bank account, the agent really doesn’t know how the deposit monies are used.
Put quite simply, if the owner is allowed to commingle the deposit monies with his other monies, he is, in all likely hood using some or all of the deposit monies to pay the commission. Of course, he still has the obligation to refund all or part of the deposit at the end of the rental term in accordance with the terms of the rental contract.
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