Hi there,

Take it easy I'm new here! Long time lurker, but wanted to get others thoughts on my situation!

So we moved out of our old city for work reasons last year and decided to rent out our house since we weren't sure if we would be back. We used a property management firm to help us find and screen tenants, and who manage any requests that come up. The tenants have now reached out to us to see if we were interested in selling the house. Reading the property management agreement, I realized it has a clause for sales that says "if a tenant purchases the Property during a tenancy or for a period of 6 months following the end of a tenancy, Agent shall be deemed the procuring cause of the sale and Agent is to be paid a sales commission of 3% of the sale price. This provision continues in effect even if this Agreement is terminated." Rookie mistake I suppose, since when I first read this I thought what were the chances that our tenant would want to buy the property? 

My question is - how have other people dealt with a similar situation? Doing a search in the forum, it appears a lot of people recommend striking or amending that part of the agreement before starting the contract, but we're already 8 months in. I definitely want to compensate the agent for any lost management fees, and possibly even pay a flat fee for finding the tenant but 3% feels a bit steep. I'd like to hear other's thoughts!

If you want to sell and the price is to your liking, then yes 3% is normal. Since you already signed it is reasonable to go ahead. An agent's typical commission is 3% anyway unless you were planning on marketing and selling this house yourself. If you go forward with the sale through your PM, you can always negotiate all other parts of the sale, for instance, making it an "AS-IS" sale so you don't have to make any additional property improvements prior to sale and that the current resident cannot come back to you requesting a credit for things found during an inspection. 

People seem to be always focused on what they are losing versus what they are gaining.

Call a couple af real estate agents in the area of the property and you'll most likely find they'll charge you 5-6% to list and sell the property.

So, focus on the positive news that you saved 2-3%!

I agree with Drew.  While it may suck as it seems like they are literally doing nothing for the sale itself, have them 'earn' that commission and get them draw up the paperwork and handle the sale, the same as a regular agent would.  Also make sure they aren't going to charge you any termination fees (if they did that AND charge the commission, I'd be mad).

I appreciate the feedback all. I suppose I should have mentioned that when the tenant reached out, I talked to a real estate broker friend of mine who said he was willing to help with the transaction for a fixed fee since it's fairly straightforward (buyer identified, no listing or staging needed, etc. It's just paperwork at this point) When talking to the tenant's agent, we had thought we could just go with the 3% commission total, but that's before I realized the clause in the property management agreement. Again, I'm more than willing to reimburse and potentially pay a bit extra to the property manager for loss of revenue and for his time, but 3% on a $700K+ purchase seems steep for a case where he isn't doing anything extra in the transaction itself.

If you sold the home on the open market, you would probably pay about 6%. That is split between buyer's agent and your agent. In this case, you are only paying 3% because the agent already represents you and the buyer is in place. So you're saving thousands of dollars in commission.

Another benefit: the tenant already occupies the home and is familiar with it. They're less likely to bring up maintenance issues and ask for repairs or concessions.

I'm not a fan of the "6 month" clause, but otherwise this is legit and in your favor.

To clarify, the tenants have their own agent who is different from the property manager. What I had initially discussed with the buyer (tenant's) agent and just my own broker friend was a 3% fee total plus a flat fee for my broker friend. If I also have to pay the additional 3% fee to my property manager, that effectively becomes the same 6% total as a normal listing, with some obvious benefits (no staging, need for open houses, buyer already identified, etc) but also lacking some benefits like getting multiple bids/offers, etc. It just feels like 3% is a bit much for that, a smaller % or flat fee makes more sense to me - but am I crazy?

Why did the tenant contact you about buying it instead of the PMC?

Why did you enter into discussions with the buyer's agent behind your PMC's back?

Unless you've signed a contract with the buyer's agent, you only have to pay a commision or fee to the broker/agent representing you, which is your PMC.

The buyer hired their own agent, so they are responsible for paying their agent. 

Pretty sure buyer's agent is thinking they can get their 3% from you and screw your PMC. 

You seem to have created a legal dilemma for yourself by not understanding your contract with your PMC.