Posted by JPiper on December 18, 2000 at 08:39:00:
Houserookie:
This deal was back in the 80’s. Subprime lending did not exist as an industry. Nor did I have much equity at the time to permit the sale of a note (if I had known anyone in the note business back then, which I didn’t).
Things change…today this guy could be easily financed. Back then he was turned down.
“Suitable financing”??? I didn’t use the term.
JPiper
Agents Commission on a Lease Option - Posted by daveh
Posted by daveh on December 15, 2000 at 23:41:55:
I just bought a property down in Florida. I’d like to lease option it for better cash flow and to recoup some of my initial expenses.
I have an agent that manages my properties down there. What would be a reasonable commission for him to make if the TB buys in a year or so? Currently our contract is 3.5% if the tenants buy.
One months rent as commission… - Posted by howard-nyc
Posted by howard-nyc on December 17, 2000 at 11:24:55:
makes good sense!
In the northeast it is standard practice for the “tenant” to pay one months fee to the re-agent/company. This fee is then split further with the broker/owner of the agency.
e.g. if rent is $1200/mos then tenant pays a $1200 fee to the agency. The agent gets $600, broker/owner gets $600.
In the lease option scenario I think it makes sense to be more generous with the money. You the deal maker may be taking a $3-6k premium! You can certainly afford to pay one months commission to the agent. Pass the same amount along just as if it was a normal tenant/agent rental transaction.
You have to make it palatable to the agents to continue doing business with you. Why should I take a qualified buyer to your lease option, when I can take them into a house they could buy now and then I earn my 6% commission now!
The best part is that with the lease option you can then give them an “equity kicker”. Once the buyer exercises then the agent can earn their 3.5%. Assuming it is 3.5% of the amount of the sale.
Re: Agents Commission on a Lease Option - Posted by JPiper
Posted by JPiper on December 16, 2000 at 10:12:40:
I think a 3.5% commission is reasonable when the tenant EXERCISES the option.
The question is, what is reasonable for finding the tenant/buyer to begin with?
One way this could be handled is to pay the agent a commission on the lease itself…let’s say 7% of the total one year lease. When the tenant exercises you pay him the 3.5% LESS the lease commission he has already been paid. That would be one way.
Or…you could establish the upfront money that you want from the tenant/buyer, and then agree to pay the agent a flat fee of some amount if he produces the tenant/buyer…which will be deducted from the 3.5% due upon EXERCISE.
Understand this…all commissions are negotiable. So there are no rules here. But if you want to keep the agents interest you’re probably going to have to pay him something to find these tenant/buyers.
By the way, DO NOT use the agent’s paperwork for a lease/option. Chances are it won’t protect you in the ways that you need to be protected. That particular piece of wisdom cost me about $1500.
JPiper
Re: Agents Commission on a Lease Option - Posted by chris
Posted by chris on December 16, 2000 at 16:18:33:
What was the “hole” in the agent’s paperwork?
Re: Agents Commission on a Lease Option - Posted by JPiper
Posted by JPiper on December 17, 2000 at 09:32:08:
Chris:
At the time I was doing an out-of-state deal, and was selling a house via lease/option (my first). The agent claimed that we “needed” a purchase contract to combine with a rental agreement, with a separate form concerning details of the “option”. What a confusing mess! In the end, I overlooked the language in the purchase agreement which made the deal subject to financing. The buyer later decided NOT to exercise, and demanded his option money back…which was being held at a title company at the agent’s suggestion. OUCH! When I disputed this the buyer contacted his attorney, who pointed out the contingency in the purchase agreement. I finally agreed to give part of the money back, which they accepted…that amount was $1,500. Learned alot of lessons in that one. Unfortunately, at that time this newsgroup didn’t exist and there wasn’t alot of knowledge around about lease/options…so it was easy to make expensive mistakes.
JPiper
Re: Agents Commission on a Lease Option - Posted by Houserookie
Posted by Houserookie on December 18, 2000 at 07:47:43:
If the contract states subject to financing, why didn’t you push the buyer to get financing from sources that you know?
YOu should have been able to determine whether the tenant can get approved.
Personally, I have a difficult time buying into the idea of “suitable financing.” WHAT THE HECK IS SUITABLE?
Could you have forced t/bs to accept an owner
financed note from you as “financing” then sell that note to an investor?
This should take care of the subject to financing deals.
Houserookie
Re: Agents Commission on a Lease Option - Posted by chris
Posted by chris on December 18, 2000 at 01:25:41:
Mr.Piper-
Thanks for the detail on that one. Definately sounds like an expensive course on lease options that was no fun to take the hit on.
-Chris