How Much Does a Real Estate Agent Make on a Rental?

Commissions for a landlord

For rental properties, it’s common for the landlord to pay a realtor commission after finding a tenant.

If this is the agreement between the realtor and the landlord, then the commission could be a percentage of the monthly rent.

Often, the average real estate agent commission falls between 10 and 15 percent.

So, if the monthly rent on a rental is $3,500 and the agent charges 10 percent, the total commission will be $4,200.

To arrive at the total commission, assume the rental period is 12 months. Take 12 months and multiply by $3,500. That gives you $42,000. This represents total yearly rent, which is then multiplied by 10 percent to arrive at $4,200.  

This commission amount generally gets split 50/50

This commission amount generally gets split 50/50 between the realtor who listed the property and the realtor representing the renter, or tenant. So, in this example, each agent gets $2,100 ($4,200 ÷ 2). The actual commission amount received by the realtor comes from the agreement he or she has with their broker.

Another scenario for paying a real estate agent commission is to pay the amount equal to one month’s rent.

When this is the agreement between the landlord and agent, the commission is often paid using the tenant’s first month’s rent.

Furthermore, if the tenant decides to renew his or her lease, the agent could receive a renewal commission.

But, the lease agreement would have to include a clause stating this. The commission amount stays the same in the event a renewal commission is stated in the lease agreement.

How long does it take to make money as an agent?

Now that you know how much money a real estate agent can make, how long does it take? The truth is it is very hard to make money as a real estate agent right away. Being a real estate agent is like running a business. It takes time and a lot of effort to build up a business. In the beginning, you have to work hard and get out of your comfort zone. Once you build up the business and get clients, the business will come to you and you will not have to put as much effort into the business. I have seen agents make over $100,000 in their second year. It is not easy, but it is possible. It took me six years before I was making $100,000 a year because at the beginning of my career I did not plan or build my business, as I should have.

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How Can Tenants Find A Real Estate Agent That Deals With Rentals?

Using sites like realtor.com is a great place to start searching for realtors who serve the area you wish to find a unit in or near.

You can read their profile bio or call them and ask if they are interested in helping to find a rental property.

Tenants can also ask their network of family, friends, and coworkers to recommend them to a realtor that has earned their glowing reviews.

In either scenario, if the realtor you come in contact with does not handle rental properties, they are likely to know of a colleague who does!

‍How Does A Realtor Decide What To Charge For Rentals?

Percentage of the lease

Sometimes commission is determined by a percentage of the yearly lease amount.

If the agent charges 10% of the yearly lease, and the monthly rent is $2,800 making the yearly total $33,600, the agent will make a $3,360 commission.

The commission may be split between both the listing agent and the tenant’s agent. This would make the above scenario’s commission $1,680.

One Month’s Rent

Another common way agents decide how much to charge for commission is by simply charging a single month’s worth of rent. This requires less math than the above scenario.

The real estate agent would get the first month’s rent price because they found the tenant.

The brokerage would deduct the commission from the first month’s rent and pay the landlord other fees like the security deposit.

Buyer Pays A Fee

The norm in some cities is that the tenant will pay the realtor a percentage of the first month’s rent.

For example, in San Francisco, it is common for the fee to be half of the first month’s rent paid to the real estate agent upon signing the lease.

Which Services Are Part of An Agent’s Rental Commission?

The realtor is liable for the numerous tasks that are both apparent and unseen in the process of finding and signing a lease for a new apartment or condo.

The following are some examples of these services:

  • Providing the customer with rental rates that are in line with the market.
  • Conducting market research to find vacant properties which meet potential customers’ needs, want, and budget.
  • Inspections with homeowners can be set up in advance.
  • Bringing their potential renters to the showings.
  • Assist customers with administrative tasks such as filling out forms and making deposits.
  • Accurately verifying the client’s financial status and references.
  • Resolving the issue of renting a property
  • Collect funds by completing all leasing paperwork and having it signed.
  • On transition day, hand over the keys to the renter!

How can you become an agent?

Becoming a real estate agent is not an extremely difficult thing to do. In most states, you must take pre-licensing education, pass a test, and then work under a broker for a certain amount of time. Working under a broker does not mean you do everything they say or that you are their assistant. It simply means that you hang your license in the broker’s office and they oversee your activities to make sure you do not do anything illegal. I highly recommend Real Estate Express to get your license. Real Estate Express offers classes in most states and has some of the lowest prices for real estate classes. Two of the agents on my team took online classes through Real Estate Express and easily passed the exam.

One Months Rent As a Fixed Fee

The most common way for real estate agents to be paid for residentials rentals is a fixed fee of one month’s rent. This is less common in commercial real estate.

As a listing agent, this is what you will be negotiating as your fee. Out of this fee, you will be paying the tenant’s agent an agreed upon fee as well. Sometimes, landlords who are wanting 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 are 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 as a real estate agent.

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.

Frequently Asked Questions

Do Realtors Find Rental Properties For Free?

Some real estate brokers are willing to work for nothing in exchange for the opportunity to engage with tenants. For their efforts, the agent wants rewards with repeat business or recommendations from friends and family in the future.

This probably only applies to a real estate agent working in a market with more units than buyers.

When Tenants May Gain from Opting for Realtors?

  • The following are some possible benefits to a renter of working with a realtor:
  • A tenant may have a specific need (meet their budget, be in a particular community, etc.) when looking for a new place to live.
  • Renters who are short on time.
  • The rental market has a lot of tenants, and there aren’t enough high-quality options to choose from.
  • The vacancy frequency in major cities can be quite low, and the nicest apartments can sell out in as little as a few weeks or days.
  • They would know the best way to obtain the renter the unit they want during a chaotic market.
  • Because they are more familiar with the section and rental market than the prospective tenant, moving can be an excellent reason to utilize a realtor while looking for rental space. A realtor also has experience in the regulations of the area. Renters would know when they legally obtain their security commissions.
  • Because of their contacts and experience, a good agent has more experience finding houses on the market and negotiating on your behalf.
  • So, indeed, real estate agents can assist renters in various situations! The realtor’s charge is well worth the money, given these considerations.

How much are real estate agent fees for rentals?

Many factors influence broker costs, including geography. To find a good tenant, many landlords pay the real estate agent. Landlords nearly always foot the bill for apartment-hunting services.

Agent fees, sometimes known as “broker fees,” are frequently the renter’s responsibility in increasingly competitive rental markets. You may even need to compensate the landlord’s broker if you found the house on your own, as some rentals require a charge for selling the property.

When Should You Start Investing in Real Estate?

After you’ve paid off your own house, you can invest in real estate. That means you’ve paid off all of your debt and have three to six months’ worth of living expenses set aside as a rainy-day reserve. A 401(k) from your employer or a Roth IRA should account for at least 15% of your take-home pay. Don’t acquire an investment property if you can’t pay in full.

Management Company

A real estate management company is not a real estate broker. Management companies handle the day-to-day operations of renting properties, the repairs, complaints, collecting rent and finding tenants. They charge the landlord a percentage of the monthly rent to perform these duties, usually 10 percent. The tenant does not pay these fees.

NYC Bill Limiting Agent Commissions

A bill, better known as Intro 1423, was introduced in a couple of years back to the NYC Council to limit broker’s fees and the sometimes exorbitant security deposit requirements of landlords in the city.

Read on: What is a Security Deposit on an NYC rental?

Manhattan Council members Keith Powers and Carlina Rivera introduced the bill, which would limit all broker’s commissions on rentals to the cost of one month’s rent.

This measure passed much to the chagrin of many industry professionals.

Many real estate professionals have argued that these measures will only hurt NYC renters.

The theory is that people who might otherwise have been able to qualify by paying more upfront can no longer qualify for an apartment using this method.

Furthermore, they also argued that the new laws would only raise rent prices as landlords would add the price of the commissions onto the monthly rent price.

Nonetheless, this will even the playing field for renters of all income levels across the NYC rental landscape, and does away with the predatory behavior of some agents and landlords.

Most people balk at the thought of paying a broker’s fee. But consider the amount of work the agent is putting in on your behalf:

  • Time put into researching the best apartment to meet clients’ needs
  • Time showing apartments
  • Time preparing your documents and submitting to the landlord
  • Time negotiating with the landlord on clients’ behalf
  • Time preparing and submitting lease
  • Time managing the clients and their expectations

Looking for apartments on your own may not be an issue if you have the know-how, organization, and time to do so.

But given the difficulty of finding an apartment in NYC, paying a commission to your agent is, in the end, well worth the benefit of finding a home you’ll have for the foreseeable future.

What About Renters Paying Their Agents?

Very rarely are agents paid for rentals by the tenant. Most often, it is coming from the landlord.

It does happen, but it’s fairly rare for renters to pay their agents. When it does, the agent is negotiating with them upfront to make sure that the terms of their agreement 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.

Photo by Nohe Pereira on Unsplash
Photo by Nohe Pereira on Unsplash

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