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Why Landlords Need to be Paying Their Brokers Fees, and not the Tenant

I have been wanting to write an article for a long time about the balance of fees in Abu Dhabi and broadly the UAE. Currently Abu Dhabi has the unfortunate habit of asking tenants to pay brokers 5% when they lease a property through that broker. In most of the world landlords pay brokers for the service of getting them valuable tenants, but here, due to there historically being very few landlords, those landlords have required this service for free and the tenants have been required to pay. In recent times property managers have gotten in on this act as well. Realising that landlords aren’t used to paying for property management they have kept the fees for their services very low by charging tenants this 5% (and taking half of the brokers 5% if through a broker).

There are many reasons for the landlord to pay the broker fees::

1.)  Charging tenants 5% fees means they have 5% less to spend on rent, which means the landlord gets lower rents;

2.)  Leasing fees are “cost neutral”. A tenant typically has an amount they can spend including fees e.g if they have 100K they can spend 95K on rent plus 5K fees or 100K on rent and no fees. If the landlord’s unit has fees included they can get 100K (and pay the 5K to the broker). If the tenant renews at 100K and the landlord doesn’t have to pay the broker any more money then he pockets and extra 5K for each year of renewal;

3.)  The rent cap is in place now so that you can only raise rents 5%. When the market turns and heads back up landlords will want their rents to be as high as possible, so they should be putting all their fees into the rent now to boost them;

4.)  In terms of the “sales journey” you need to lower barriers to people taking your property to close the deal. If you break up that journey with fees then that puts people off the sale. There should be as few barriers as possible to making a sale;

5.) People with housing allowances love “no commission” deals as they can then roll that into their rent to by paid by their company, as opposed to having to pay commission from their salary;

6.) In some cases the owner is the one charging the fees on top of the rent. So essentially the landlord is getting this 5% itself as well as rent. If clients will pay 5% less rent now they have to pay this additional fee then it makes no sense charging it. Many landlords think that they are very clever charging this fee and that it is and “extra” 5% on top of their rent. These landlords are known as “unsophisticated”;

7.) Landlords are getting a service from brokers, how can you complain about poor service when you aren’t paying for it? Landlords should be concerned about who they ask to lease their property and not simply pitch it out to just anyone.

And even after explaining all of this the landlord will say “well this isn’t the way it is done here”. But this is the age of the disruptor, not the sheep. Be the first.

Ben Crompton is the Managing Partner of Crompton Partners Estate Agents LLC, an Abu Dhabi based real estate brokerage voted in the top 10 in the Arab World by Forbes in 2017.