Money Loser — But Making it Up on Volume(?)

Agent compensation is 10% of the first month’s rent as stated in the lease.

–“Agent Remarks” from MLS rental listing

Let’s see . . ..

Ten percent of the monthly rent — $1,295 in this case — comes to $129.50.

Subtract a cut for the Realtor’s broker — call it 30%, or about $40.

Then subtract two tanks of gas to show the client another 8-10 rentals, to educate them about the market.

Call it $100.

Net pre-tax compensation, before allocating any overhead or ancillary costs (like auto depreciation)? 

$10.  Minus $10.

Loss Leader

But that assumes your time is free — which mine assuredly isn’t.

So, assign an hourly rate for the several hours associated with showing rentals, doubling back for any second showings, drafting and explaining the lease and any needed addenda, etc.

Finally, factor in the time and potential headaches (if not liability) should there be any issues with the property or its (mis)management.

I come up with a negative $500 – $1,000, net, for every rental commission that a Realtor handles.

Thanks — but no thanks.

Opportunity Cost

Yes, I know that there are Realtors who get referrals from handling rentals.

And yes, it’s true that some renters eventually become Buyers, rewarding the Realtor who cultivated the relationship and stayed in touch.

At least for me, however, two words loom large:  ‘opportunity cost.’

Realtors who invest their time and money on such an unremunerative activity are missing out on here-and-now home Buyers and Sellers and actual commissions.

Net out all of the foregoing, and it’s obvious (to me) how busy Realtors should and shouldn’t be . . .  um, spending their time.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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