Leasing Commissions

The topic of leasing commissions is heating up again in my sphere of influence. Some would suggest with a growing pool of talent coming into the market place that commissions can be cut. Others would suggest they are now more important than ever.
What do you think?

WOW! I hope this discussion takes off. I suppose it really depends on what we're trying to accomplish with commissions.

When you say "cut", do you mean entirely or just reduced? Either way, what is the goal from that? Saving money or redistributing into salaries? Is there some other goal there?

From my perspective I can't say commissions are more important than ever, but are critical for insuring accountability. I'd actually like to see them become a larger percentage of compensation.

It's not really just commissions I suppose, but what needs to be looked at is entire compensation strategies. Base, commission, & bonuses. Anyone feel like they have a great system?

I believe leasing commissions are important, but with the current economic conditions, the real focus should be on retaining the residents we already have. I have always found it interesting that renewal commissions are strikingly lower and even non-existent when research shows that retention is the best way to grow NOI. What would happen if we paid the same or higher commission rates for renewals with a shift of focus toward personalized service, improved work order resolution and follow-up?

I think another challenge with renewal bonuses is that it is often a split bonus with the rest of the team because every person onsite, including your maintenance team, are crucial to the renewal process. Unfortunately, a split percentage doesn't have as much perceived financial motivation. I think it would be beneficial if the group shared how they compensate for renewals that gets around this problem!

This looks like an old post I would like to reopen. We have been talking internally about commission structures. Just curious if anyone would be generous to share their leasing commissions? I have heard of $50 for 6- 11 month leases and $75 for 12+ month leases. There is another strategy that bases the commissions on quantity- $25 for leases 1-15 $50 for leases 16-30, $75 30+ leases. Obviously, smaller properties are at a disadvantage in this plan and also if you are lucky enough to be in the mid to high 90's in occupancy, your potential is not there. Please share any structures you have in your company or comment on the different philosophies. Thanks!

(Moderator Note: Yep, you are right, Jill! We sometimes like to look at posts when MFI was still "young" and showcase them again.)

As far as leasing commission go; here what I would like to see, I would like to hear opinions as far as if you think I am nuts:

For the NEW resident, I would like to see a percentage of the residency's value as opposed to a flat dollar amount. For example; if I rent a unit for $1250 per month, and the applicant signs a one year lease; this lease is worth $15000 over the course of the lease I would like to see commission of 10% of the $15000 ($1500). IF I used a concesson to close the deal, that concession should cut the commission in half (down to $750). I would be okay with commissions being divided up monthly and added to my paycheck as follows: let's say I did that ten times (being responsible for 10 units at $1250 for a year each: $15000 x 10 = $150,000; let's say I used a concession for 3 of those 10 leases, I would have 3 commissions of $750, and 7 of $1500 (3 x 750) + (7 x 1500) = $12750 in commission, divide that by the number of pay periods you have and attach that amount to each paycheck (let's say your payroll is processed and paid monthly, in that case you would add $1062.50 to my monthly check). In the event another team member helped me close a lease, I would expect to share THAT commission with that other team member. I would also expect to share in the commission I helped to create. This encourages honesty with all team members.

For the RENEWING resident, I would take the same percentage of the VALUE of the lease and put it in a pot. I would take what's in the pot at the end of each month and split it up equally among the entire team and add it to their paychecks the following month. Let's say you have a staff of 6, and at the end of the month, you have $6000 in the pot. In this case, EACH employee would get $1000 extra next month. Since ALL team members have their hand in renewals, you need a commission structure that says you not only understand it, you want to encourage it to continue.


Am I nuts?

Love the idea....but I'd venture to say most owners won't pay out $1000 on a bonus! Perhaps a similar structure with a smaller percentage?

I worked for a very generous company. We got $100 per lease, $300 for "hot" units. My bonuses were at least $1000 per month.

I was just using the numbers as examples to keep the math easy, the specifics would be a lot lower than my example.

I recently changed commissions to pay the higher amount on lease renewals. I'm hoping this will encourage more work on resident retention. It helps both the employee and the owners to see an increase in their bottom line.

Due to the economy, I have also tested the water with increasing commissions instead of giving an increase to the staff member's salary. This allows them to hold the key to their increase.

Hi Johnny, I have seen reward programs structured similarly to what you proposed and it was an administrative nightmare to track. This was for non-commission type recognition designations. But the staff was so busy with the day to day tasks, that no one ever turned in their points. I certainly see how a monthly commission would certainly increase the motivation, but again, the management would spend a lot of time verifying the information. Would you charge back skips?

Lori, can I ask how much you pay for new leases and renewals? Do you stagger based on quantity or lease length?

I agree maintaining commissions has helped during the economic downturn when raises are non-existent or very minimal.

Jill Bounds wrote:

Hi Johnny, I have seen reward programs structured similarly to what you proposed and it was an administrative nightmare to track. This was for non-commission type recognition designations. But the staff was so busy with the day to day tasks, that no one ever turned in their points. I certainly see how a monthly commission would certainly increase the motivation, but again, the management would spend a lot of time verifying the information. Would you charge back skips?

I would make it so it is in the best interest of the team member(s) to report any NEW or RENEWING lease in a timely manner. Not reporting the lease means no payment is made. It could be as simple as scanning in Page one of each lease, and emailing it as a PDF to the District manager with the specifics (was it a new move in or a renewal, which team member(s) were responsible for the new lease, how much the monthly rent is, what the term of the lease is, and if any concession was made to the resident) so the district manager could approve the commission and forward to payroll. This should occur within THREE days of the lease being signed. I would charge back skips and evictions (retailers charge back returns) for the balance of the commissions owed on that particular lease (if commission is paid in a lump sum).

I am having a little trouble confirming whether or not I can invoice for more than what the property says they pay. If I'm bringing a tenant to lease a $10k per month property and they're talking about flat fees that don't even equal 50%....it just does not seem right. Typically that commission would be 50% for a 6 month lease and 75% for a 12-month lease. It's 50% across the street in a comparable building.

I want to invoice them for 50% of one month's rent. Or charge a percentage on the entire 6 months. I have googled and googled laws in Texas about this. I get thrown in every direction as far as "lease commission" articles go. I need specifics. Any advice would be most appreciated.

Before thinking of cutting commissions consider this, leasing is the ONLY income generating department in the company. Everyone is receiving income because of the efforts of your leasing staff. For the work they do and the responsibility that they have to the entire company, I don't think commissions are something that should be cut.

Is the idea of paying it out monthly due to if the resident pre-terminates the lease? If they stay 8 months of a 12 month lease, the agent would only be paid for the 8 months? Also, with leasing professionals having high turnover it could be an incentive for them to build long term roots with a company. At they same time, many want to advance so it would be helpful to have a management training program in place to promote from within.