Leasing Agent Compensation?...First a word about VACANCY!

As a business consultant to the apartment industry, I am asked a LOT, "What's fair leasing agent compensation? Is their a leasing commission structure you would recommend?"

There is no easy or short answer to this question, so let's take a round about way of discuss it.

I find it a little backwards when people want to know what OTHER properties or OTHER management companies are doing when it comes to leasing agent compensation. I never say it out loud, but I'm always thinking, "What's it worth to YOU?" (as owner/manager) AND, "What's it worth to THEM?" (your leasing agent/leasing specialist)  What do I mean by that?

FIRST, let's first talk about the REAL problem - VACANCY.

I don't have a vacancy problem!

Well, then, you shouldn't worry about leasing agent compensation then!

OK, OK. Let's talk about vacancy...

TO make it easy, let's say we're talking about ABC Apartments. They have 100 units. Their average rents are $1000.00/unit.

Prior to the rental market taking a downward turn, ABC Apartments has been running along great, apartments never took very long to lease, and they had been at 97% occupancy for many years.

Fast forward to today, they are at 88% physical occupancy, which means they are at 12% vacancy. All of the sudden, they are struggling with just staying ahead of the renewals and turnover. Increasing the occupancy in the midst of the resident turnover looks very daunting.

Let's do the math.

At 97% occupancy, the vacancy loss is:

(Average Apartment Rents) x (# of Vacant Apartment Units)

$1000.00 x 3 vacant apartment units = $3000.00 of vacancy loss monthly. This is what they are used to operating at. Annually (x12), this amounts to $36,000.00 of annual vacancy loss.

TODAY, the apartment project is at 88% occupancy, the vacancy loss is:

$1000.00 x 12 vacant apartment units = $12,000.00 of vacancy loss monthly. Annually (x12), this amounts to $144,000.00.

The different in vacancy loss monthly is $9000.00! ($12,000 - $3000) And annually, the difference is $108,000.00! ($144,000 - $36,000)

How much does the $108,000.00 mean to this apartment project? The Owner/Developers/Investors? The apartment community manager? Now that we have things in perspective, it brings up a WHOLE bunch of other questions, like:

1. Do you have the right staff in place? If your maintenance guy is doing showings - you may have a problem.
2. Do you have a plan in place for resident retention? If you have vacancy problems, you HAVE to have a plan in place to close the back door to your vacancy problem.
3. Is your staff properly trained? Not just in customer service, but in closing of your prospects?
4. Are your employees properly motivated and positioned to succeed? This question leads into the real TOPIC: What's fair leasing agent compensation package look like? ("Properly motivated" is code-word for  compensated.)

You can't have a conversation about apartment leasing agent compensation without considering everything that is affecting your apartment's vacancy.

Do you have other questions? Other considerations? Leave me a comment in the COMMENTS section!

You can read the original blog entry on my blog at: http://blog.rentsoda.com/2010/07/leasing-agent-compensation-first-a-word-about-vacancy/

Daisy Nguyen is owner and CEO of RENT SODA, a business, operations and marketing consulting company to the apartment industry. Email daisy@rentsoda.com if you have questions, "like" RENTSODA on FACEBOOK, or visit the main website, RENT SODA for more information.