Fair Tenant Placement Pricing Structure

[Eric C.]

Standard structure is a % of 1st months rent for a PM to place a new tenant.  Included in this fee would be any agent commission if the tenant was represented by an agent.  If tenant finds property through many of the online websites, no commission is paid and PM company keeps full amount (ie. double-dipping).  Since the agent commission is a high percentage of this amount, how can a landlord ensure that the PM company is unbiased during the tenant search phase. 

Are any PM companies using a more "fair" compensation structure that would prevent bias during the tenant search phase?  The only structure I can think of is instead of using a fixed % of 1st months rent, use a fixed fee + agent commission (if applicable) structure.  Any thoughts?

[Nathan Gesner]

The most common method is for the PM to charge 50 - 100% of a month's rent as the leasing fee. They share a portion of that fee with any outside agent that brings a qualified renter.

EXAMPLE: Your home rents for $1,000 a month with a leasing fee of 50%. An outside agent brings a qualified tenant and they move in. Your Property Manager charges $500 for the leasing fee and pays $200 of that to the other agent.

If they find the tenant through their internal processes, they still charge the full leasing fee. Why would this be unacceptable? Either they are paying the other agent or they are paying for their internal marketing. The cost to you is the same.

I have seen some Property Managers charge a reduced fee if the unit sits vacant longer than XX days. I've also seen them waive management fees on a vacant property to show good faith that they are only paid when you are paid, which is what I do. On the other hand, some managers charge a fee on vacant homes because they want compensation for the time spent checking on it, reporting to you, etc.

You have to shop around and determine what is normal for the market and what you are willing to accept. There are cheaper managers out there but what services do they provide? Sometimes the most expensive manager is the one that puts more money in your pocket at the end of the day.