Though renting may come with smaller commissions than selling, working with prospective tenants can still be a profitable part of your real estate business, Philadelphia Realtor Jonathan Pressman writes.
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Some real estate agents shun renter clients altogether, while others will only work with renters at certain price points or if they are personal friends. Though renting may come with smaller commissions than selling, working with prospective tenants can still be a profitable part of your real estate business. Let’s examine the pros and cons of working with renter clients.
Pros
Renters become buyers
Renters are only renters until they’re ready to buy. A renter might not have enough money to purchase a home right away, but if you have some patience, renters can evolve into buyer clients in the future. By helping a renter client today, you can build a strong relationship and position yourself to represent them when they choose to buy.
The rental process is usually much faster than a sale
Purchasing a home takes several weeks while renting a home or apartment takes just a couple of days. Representing renter clients lets you close deals faster and generate income sooner than if you work exclusively with buyers.
There is no mortgage to worry about
When working with buyers, agents have to consider mortgage and appraisal contingencies. Though landlords typically require a credit and income check, mortgage applications scrutinize virtually every detail of a buyer’s financial history. Most preapproved buyers will have no trouble securing financing, but occasionally, a deal can fall apart because the mortgage doesn’t come through.
Simpler negotiations
Overall, negotiating a rental agreement tends to be much simpler than negotiating a sale. A 12-month residential lease might include price negotiations or some back and forth about who is responsible for changing the air conditioning filter. However, in most cases, you’ll usually spend less time and effort negotiating a residential lease than you would if you represent a buyer.
Cons
Representing renter clients can be a worthwhile pursuit for agents, but there are still several drawbacks to consider before you start spending your valuable time helping renter clients find a place to live.
Not all landlords cooperate with brokers
Some apartment buildings and private landlords choose to work directly with tenants, and may not cooperate with brokers at all. In these cases, unless the owner makes an exception, you won’t get paid for the deal unless your renter client agrees to pay your commission themselves.
The commissions are usually smaller
On average, you’ll have to close several rentals to earn as much money as you would from a single sale. On a $2,000 rental, your gross commission will likely be around $1,000 to $3,600 (50 percent of one month’s rent, or 10 percent to 15 percent of the annual rent). On the other hand, if you sell a $450,000 home for a 2.5 percent or 3 percent commission, your gross commission is $11,250 or $13,500.
Rental applications can be rejected, even when offering the full asking price
Even if your rental client offers full price, rental applications can still be rejected. When evaluating prospective tenants, landlords consider everything from credit and income to references and rental history. Rentals might not come with the hassle of a mortgage or the competitiveness of a sale, but that doesn’t mean they’re always a walk in the park.
Jonathan Pressman is a Realtor who writes on a wide range of financial topics. Connect with him on LinkedIn and Instagram.
