More pain for tenants who engage leasing agents

Mar 14, 2023

THANKS to a rental market that started heating up in the last two years, tenants who use the services of an agent to help them lease a home are now expected to pay these agents a commission. This was not the case in the past, as the tenant’s agent usually shares the commission with the landlord’s agent, who in turn collects the commission from the landlord he represents.

This practice of agents taking a commission from their tenants has become the norm – at least for now – and mostly involves corporate clients and foreigners who are new to Singapore. This comes as private home rents shot up 29.7 per cent last year, following a 9.9 per cent rise in 2021. Last year’s rise was the highest annual increase in 16 years since 2007, when rents rose 41.2 per cent.

Property agents told The Business Times (BT) that collecting a commission from the tenants they represent is the edge they need to compete with would-be tenants who approach the landlord’s agent directly.

“Nowadays, the first question the landlord’s agent asks is ‘are you collecting commission from your tenant?’” said Karen Wong, a senior associate director with OrangeTee & Tie who has acted for tenants for 15 years.

BT has also seen screenshots of tenants’ agents responding to listings by immediately informing the landlord’s agent that they are collecting commission from their tenants, before stating details such as their tenant’s occupation, number of occupants and desired date of lease commencement.

This is because landlords’ agents have little reason to deal with tenants’ agents when they do not need to share commission when renting directly to tenants themselves.

“In such situations, the landlord’s agent naturally filters to give priority to direct tenants,” said Natasha Goh, an associate division director with SRI. “However, even for direct tenants, some are not clear in their requirements and seem to be shopping around. So the most advantageous are tenants with agents they are paying. Especially if viewing slots are limited, landlords’ agents are most confident to show this particular type of tenant their properties.”

There are no hard-and-fast rules about how much commission agents charge, but the market practice has traditionally been one month’s rent for a typical two-year lease. When a tenant’s agent successfully co-brokers such a lease – that is, the client he brings signs the tenancy – the landlord’s agent usually shares half his commission with the agent.

But if the rent is at or below S$4,000 a month for a two-year lease or if the tenancy is for only a year, then the tenant pays his agent one or half a month’s commission, respectively. This has been the practice because the landlord’s agent only collects half a month’s worth of rent as commission from the landlord for each year of tenancy.

“If we still have to share commission for that, then we might as well do room rentals, where agents collect one month’s rent in commission, so maybe S$800, but it’s easy work, and there is no follow-up after the lease is signed because the tenant is living with the landlord and they will deal with each other directly,” explained an agent who has been acting for tenants for about a decade.

For room rentals, the lease is usually for one year and the commission is one month’s rental – even if the lease is for less than 12 months.

Still, from the beginning of last year, the market practice of sharing commission when the monthly rent is over S$4,000 for a two-year lease, has also changed.

“Today, the bar has been raised, and in some cases, even if the rent is S$5,000 or S$10,000, the agent doesn’t want to share commission with you if he is getting a lot of enquiries,” noted Wong.

As with all things involving higher costs, there is resistance from tenants, some of whom stop communicating with agents once they are told they need to pay a commission.

However, some tenants who try to go it alone return to seeking an agent’s help when they struggle to secure a viewing.

“They don’t have a long period of time to get a unit, and some are staying in a serviced apartment, which can easily cost S$10,000 a month for the whole family,” said the unnamed agent. “Tenants can do that for a while, but they’re unhappy and worried, especially if their shipment is arriving and they need to settle their family in.”

Companies realised this was a problem as it was distracting their staff. Neither was it ideal that their staff were working in the daytime and searching for accommodation at night. And that’s when the companies became prepared to pay a commission for professional help, said the agent.

Landlords’ agents also prefer to deal with tenants who are represented by an agent, as it ensures a smoother transaction, especially for newcomers to Singapore. This group often lacks awareness about the rental process, tenancy agreements (TAs) and their obligations as tenants.

This means the agents have to handhold such tenants and explain every single clause, even though they are working for their landlord. Sometimes, the back-and-forth on a TA can go on for weeks as tenants and landlords work towards agreeing on details.

“A direct tenant may not have much insight into the market and may make unrealistic requests,” explained Goh, adding that even some locals can get sidelined if another tenant who has a paid agent to handle the lease comes along.

Of course, it is financially more beneficial for agents if tenants and landlords each pay their own representative. But beyond that, agents say this is a good practice, because there is no dispute when each party pays their own agent.

“Then we won’t have an agent fighting for the tenant’s interests while collecting commission from the other side,” said Warren Chan, principal consultant and key executive officer at Propseller.

Goh agrees: “When I voice out a tenant’s concern about a property, sometimes, the landlord will interject and say that he is the one paying my commission, which is true, so it’s awkward.”

Besides, the right to call for a fee is a recognition of an agent’s professional service, she added.

Tenants’ agents help tenants select units and make appointments, drive them to viewings, assist them in getting orientated, explain locational attributes and alert them to potential issues.

Typically, they guide their clients through the entire leasing process, right through mediating when problems crop up during the tenancy, till the unit is returned at the end of the lease and the tenant’s deposit is refunded.

This happens in Singapore even though industry regulator, the Council for Estate Agencies (CEA), says the agent’s role ends once the unit is handed over to the tenant to begin his lease.

And, to be clear, an agent who is paid a commission by his client should not collect a fee or commission from the other party’s agent in the same property transaction.

“For example, a tenant’s agent who is paid a commission by the tenant cannot collect another fee from the landlord’s agent,” said a CEA spokesperson. Doing so is considered a disciplinary breach involving conflict of interest and the agent may be subject to a warning, fine, or further disciplinary proceedings.

Concerned tenants can check with their landlord’s agent if the latter is sharing their commission with the tenant’s agent. “The landlord’s agent won’t be happy if that happens anyway, so a simple question will do,” said Chan.