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Property Management Blog

Who pays the sales commission?

Who pays the sales commission?

Just about every brokerage includes a clause in their property management agreement that deals with a situation where the owner sells the property to the tenant. While this happens only rarely, owners are usually interested in how this would work, and it’s a common question we get about the management agreement.

Your agreement with us to manage your property does not lock you into having us sell your property. We are a full-service real estate brokerage, and we can definitely sell your property for you, but we don’t lock you into using us. Many owners have a friend who does real estate sales, and they would prefer to use their friend if they decide to sell. We don’t have anything in our management agreement to prevent this. However, we would note that we give our property management clients a discount on our sales commission, so you’re probably better off using us.

But, a different situation comes up when you don’t have your house listed for sale, but the tenant that we found and has been renting your house for a while decides that he wants to make an offer to purchase it. How does it work when your house isn’t listed for sale but you enter into a sales transaction with the tenant?

Like the other brokerages, our management agreement does include a clause to address this in case it happens. Our typical commission in this situation is 5%, which is reduced from the more common industry commission of 6%. However, if the tenant doesn’t have their own real estate agent representing them, then we don’t have to share the commission with another broker, and we’ll usually discount your commission even further to only 3%.

The common question we get is about why the commission is lower if the tenant doesn’t have their own agent representing them. The way real estate commissions work, the seller of the property pays the commission for the sale. The buyer, even if they have their own agent, never pays a commission to their agent. Their agent’s commission comes out of the commission that the seller pays. So, if there are two brokers involved (one for the seller, and one for the buyer), two brokers have to get paid out of the commission that you pay. Essentially, they split the amount received, so your broker gets half, and the buyer’s broker gets half.

So, if we’re representing you and the tenant doesn’t get their own agent, we don’t have to pay another broker out of our commission. Most brokers would still charge you the full commission and keep it all for themselves. We don’t. We pass that savings on to you. So instead of paying the full 6% that most brokers would charge you, we discount it to 3%.

This is just one of the many ways that we put our clients first. We believe strongly that our business grows because we treat our clients right. Instead of wringing every penny we can out of our clients, we treat them fairly, and then they’ll talk to their friends and we’ll get more business. We may make a little less money from each client, but we make up for it by our business growing from word of mouth when a satisfied client tells his friends.

If that sounds like the kind of brokerage you’d like to work with, give us a call and we’ll get your house rented to a quality tenant and take care of full management for you.