The McGrath Real Estate Leasing Department is devoted entirely to advertising the property, processing applications and vetting prospective renters, creating leases, coordinating the ratification of the lease and addendums if applicable, and negotiating lease renewals. Our procedure is to contact you approximately 90-120 days prior to the lease expiration date to see if you are interested in renewing the lease with your current tenant, if you’re planning to return to the home or wish to explore the possibility of selling the home with us. In the scenario that you do want to keep the home as a rental property we provide you with the current market information and make our recommendation as to your target renewal rent price. Assuming the property will continue to be available and your experience with the tenant has been satisfactory, we then contact the tenant to see if they would be willing to renew the lease at the targeted rent rate. Our staff follows a script in this conversation with the tenant to maximize our opportunity to obtain the targeted rent amount.
In the majority of cases, we receive one of the following three responses from tenants regarding the renewal of their lease:
1. “It is my intention to move out at the end of the lease;” OR
2. “I agree to a new term at the new rental rate;” OR
3. “I will renew if the rent remains the same.”
In either case where the tenant wants to remain, we would document the outcome in the form of a lease addendum extending the term of the lease. The charge for this renewal service is 25% of the new monthly rent rate.
A renewal is often your best course of action as vacancy (opportunity cost), “presentation” or “turnover costs” and a leasing fee cost can be avoided. We always recommend trying to keep a good tenant who pays rent on time and takes care of your property, as a good tenant is the optimal goal to ensure you have a successful landlord experience.
2011 was another strong year for rentals, again we saw an increase in rents. On average, rental prices in the Northern Virginia market increased by 3 to 5 percent. In the coming year we expect rents to continue to rise and would recommend that you, as the landlord, use this to your advantage in the renewal process.
Below are the three common scenarios and tenant justifications we often hear from tenants trying to negotiate a lower rent rate or avoid a rent increase:
- The tenant states that they are unsure of their job status or have already lost their job and replaced it with a lower paying one. – In some cases the tenant really cannot continue to pay the rent and should look for a less expensive alternative. In some cases the tenant is just looking for “a deal” and feels or hopes the landlord is in a weak financial condition, or the rental market is as weak as the sales market and the renewal is there opportunity to “cash in.” In some cases lowering the rent $50/month ($600/year) may be a small concession compared to the probability of vacancy, an unknown tenant quality and the marketing charges. If you have a good tenant, there is value in keeping them.
- The tenant has “done their homework” and has some market data that indicates, to them at least, that they can find a comparable property cheaper. Often we can overcome this objection. Since we have the same, and much more market data available to us, we can often point out differences between your home “and the one down the street that is on the market for $200 less per month.” Hopefully these differences will equate to the appropriate value differentiation between the two properties and we can get the renewal without the reduction. If the property is comparable to yours and is $200 less, we usually have already factored that into our renewal approach.
- More tenants seem to understand your value position of renewal vs. re-rental and are trying to capture some of that value on their side of the table. With this argument we try to point out that while some of the tenant’s comments may be accurate, the landlord will use the same market information we are sharing with them to determine the price. We convey an attitude that despite the landlords expenses they are still going to be getting “X” in rent for the property. We also tell them that the landlord also recognizes their cost and inconvenience of moving and is not trying to charge them a “premium” for that. In other words we discount this argument despite that fact that it is a pretty accurate assessment. This can also be an opportunity to negotiate with the tenant on outstanding issues. Many times tenants have made requests that aren’t imperative but would improve their tenant satisfaction (ex. re-painting, new carpets, updates etc.). Negotiating for a higher rent can be better achieved if you, as the landlord, make an effort to improve their living situation. The value of a good working relationship with the tenant becomes important in this circumstance. This is where the good will you have created by getting repairs taken care of expediently and treating the tenant fairly comes into play. Tenants are very sensitive to the difference when they are treated “as a valued customer” and when they are treated “as someone who is to pay rent on my property while I minimize what I do for them.” If they have been a tenant for any length of time there is likelihood that they have experienced both of these situations. The risk of going from the former situation to the latter has economic value to them.
If the tenant informed us that they did not intend to renew, we then prepare to put the property back on the market for rent, 60 days before it is available. We feel it’s important to work in conjunction with your current tenant to show your home to prospective renters. Once a price is established, one of our agents will visit your home and assess the condition and marketability. In most cases a home is ready to be shown to prospective renters while the tenants still remain, and our goal is to make sure this happens so that we can avoid all vacancy between tenancies and have an immediate turn-around of tenants. In some cases, there are notable repairs needed to the property (some may be security deposit issues, some not) such as re-grouting & re-caulking a tub or re-painting, which are things we may not be able to take care of while the tenant is occupying the home so we can simply add remarks to the listing stating such items will be addressed so that when a prospective renter enters the home and sees a repair needed, they know it’s on our radar. In a few cases each year, we have tenants who do not keep the property in an orderly showing condition even after we have asked them to clean up. These are always case-by-case, but we have had to ask the landlord to delay marketing until the tenant moves out. It is in the best interest of the landlord to have the home show in a positive light, not a dirty, cluttered mess. We believe firmly that ‘presentation sets expectation’. If the home looks bad, we will attract bad applicants. In these cases, if work is also required, we can obtain estimates while the tenant is in the home so that we can get it approved by you and have work lined up immediately upon the tenant moving out to avoid delays.
In the re-rental position, we compete for your next tenant against properties being rented for the first time, occupied by the owner with a strong incentive to have the property in the most presentable position possible. We diligently work this scenario to get your property rented again as soon as possible, including maximizing your home’s market exposure through many advertising mediums like Zillow, HomesDataBase, Trulia, Military By Owner, Washington Post.com, Realtor.com, Craig’s List, and dozens more. It is also advertised on our website and Facebook Fan Page as a “Featured Listing” The cost of this service is outlined in Clauses ‘H’ and ‘I’ in Section V of your management agreement as your “leasing fee”.
Upon remarketing your home, we will solicit, thoroughly process, and present all applications to you. Once a new applicant is approved by you and their lease is drawn up and ratified, the marketing aspects of renting your home are complete.
If there is to be a quick turnaround of tenants, meaning that your current tenant moves out at the end of one month and your new tenant moves in the first of the next month, action must be taken promptly by our Repairs Department to take care of any issues that arise in the move-out inspection. An example of this might be if the carpets weren’t professionally cleaned upon move out, a lease requirement of the tenant, our inspection department would send cleaners to the home to perform and we would deduct that cost from the current tenants’ security deposit.
The Client Advocate Department will forward you a summary of the move out report provided by our Inspections Department. This report will give you an idea of the condition of the home upon the move out and provide recommendations for possible security deposit issues. Some items will not require an estimate, while others will and some items will have a depreciation value added to the equation, which is required by the IRS.
The inspection team then performs a thorough move in walk through with the new tenant and provides them a copy of the report. The new tenants then have 10 days to add to and amend their move-in report and add items they deem to be issues found in the home.
Our lease states we have up to 60 days to return the security deposit proceeds to the tenant. The water bill is the only utility bill that can warrant a lien on your home. We will do whatever we can to protect your interests here. If payments of all utility bills are verified and the security deposit is reconciled, we can get the deposit out sooner but not later than 60 days.
Again, we bring you this information to both re-familiarize you with our process here and to prepare you for what may take place in your renewal process. Be assured that we will be here to give you the best guidance possible based on your particular situation and our experience. We recognize that one of your main factors of success as a landlord is to maintain a quality income stream and a stable, quality, tenant. For questions, please contact our Leasing Team at Leasing@McGrathRealEstate.com.