Recently, I had a property listed for sale which after a short (3 month) listing did not sell. The home suffered extensive damage during Hurricane Sandy and I rebuilt it. The property market in that area is still a little skittish and the majority of buyers are looking for the incredible deals on damaged homes that they can fix up themselves. The advantage for most investors in rental income property is that even when they decide it might be time to sell, they never dismiss the idea that if selling is no longer an option, renting is a viable alternative.
The dilemma for investors seeking to rent their homes is that the best known website for listing homes, realtor.com is also exclusively fed its data by the Multiple Listing Service which only realtors (real estate agents who are members of the National Association of Realtors) have access to. So it is not possible for regular folks who are not realtors to place their listings on that website.
The other, and perhaps most important issue, landlords and non-realtor property managers face is that if they hire a realtor to find them a tenant, the fee typically charged by that realtor for the listing is one month’s rent. One-twelfth of the property owner’s yearly income on that property. Some rental listing contracts also require that this fee is paid upon each and every lease renewal by the original tenant secured by the realtor. Everything contractual is negotiable, but given that there are fees charged to realtors for their use of the MLS, annual NAR dues and local chapter dues, most will not negotiate a whole lot on the “one month’s rent” listing fee.
How can you evaluate whether or not hiring a realtor to list your rental is cost-effective? Put another way, what are your alternatives? One alternative is to use a national rental listing website, like rentUSAnow.com which allows you to list your rentals, with pictures, for free. Similar websites charge a listing fee, which is likely to be less than the realtor fee. When evaluating these options, also consider if you have the time to field the phone calls and emails and for showing the property. If you do, then there is no reason not to use a rental listing site, especially a free one.
When is it cost-effective to give up 1/12th of your annual rental income? When you do not have the time to manage the process, including the background checks and showings. It is also a good option when you are an out-of-state landlord who may not be entirely familiar with the market in which the property is located. In this case, a realtor can provide valuable information about what the market rate is for the property and can conduct tenant screening and property showings. One other thing that realtors have that you may not is a network of other realtors who are also motivated to bring prospective tenants to your property in exchange for a percentage (typically ½) of the listing fee.
In the case of my rebuilt Hurricane Sandy home, it was more cost-effective to hire a realtor, since I was working on an assignment at the time and would have lost valuable hours to the task of finding a tenant. In addition, the realtor was highly motivated. He sought me out, noticed that I had the home listed for rent and was already familiar with it after bringing prospective buyers by during the sale listing period. He also assured me that he could get a higher rental for the property than I was asking to which I replied, “If you can do that, the rental listing is yours.” And he did.