The Difference Between a Property Management Fee & a Leasing Commission

Leasing and property management often overlap.
i Stockbyte/Stockbyte/Getty Images

If you own a rental property as an investment, chances are you’ll want to hire people to help you rent it out and manage it. Each person you work with has a defined set of responsibilities and a fee for his services. Whether you hire a leasing agent, a property manager or both, ask for a written contract that clearly explains the services you’ll get and the fees you’ll pay.

Leasing Agent Services

You might use a real estate broker as a leasing agent to market the property, screen tenants and prepare the lease you and the tenant ultimately sign. The broker's job ends once you and the tenant have signed the lease. Although not all states require that leasing agents have real estate licenses, agents usually can't discuss properties or contracts with the public unless they're licensed.

Property Management Services

Property management includes services such as collecting the tenant's rent and handling maintenance complaints. Although some property managers do the work themselves, they also hire outside contractors when necessary. The property manager may be responsible for taking care of the property even when there is no tenant. Your state law determines whether or not your property manager must have a professional license or certification.

Leasing Commission

Unless your state law says otherwise, only a licensed real estate agent is allowed to accept commission for leasing property. Commission is the fee you pay the agent for finding you a ready, willing and able tenant. The commission can be a flat fee, a percentage of the gross rent or another amount, such as the first month's rent. You'll probably have to pay the commission all at once, from your tenant's first-month rent payment.

Property Management Fee

The property manager's fee covers the costs of collecting rent, fielding tenant complaints and making or ordering repairs. You and your manager can work out any payment arrangement you like, whether it's a percentage of the rent or a one-time or monthly fee. The difference between the fee and a leasing commission is that the management fee applies to property management services, not the real estate transaction that results in a lease. The fee is usually paid monthly.

Leasing Agent/Managers

Many real estate brokerages and property management companies do double duty. They lease properties and they manage them. Their first order of business is to list the property for rent, find a tenant and get a lease signed. After that, they stay involved as a property manager. A brokerage with separate leasing and management departments might charge a commission for leasing the property and a separate monthly fee, usually a percentage of the rent payment, for managing it. Alternatively, the brokerage or management company might charge a single, higher percentage that covers both leasing and management.

the nest