Iowa Real Estate Practice Exam

How is a broker's commission typically paid when representing a tenant?

1. By the tenant directly

2. By the landlord

3. By the real estate firm

4. Split between the landlord and the tenant

The correct answer is: By the landlord

When a broker represents a tenant, it is common practice for the landlord to pay the broker's commission. This arrangement is often set out in the lease agreement or in the terms negotiated between the parties involved. The rationale behind this approach is that the landlord typically benefits from having the property leased, and consequently, it is in their interest to ensure that the broker is compensated for helping to find a suitable tenant. In many cases, landlords factor the commission into the overall rental terms or price, making it a part of the costs associated with leasing their property. Meanwhile, the tenant usually does not have to pay the broker directly, which can make the rental process more appealing for them. This practice contrasts with other scenarios where a buyer may pay a broker directly for their services in a real estate purchase, as the buyer's representation differs significantly from the tenant's situation. Additionally, while creatures like split commissions can occur in certain agreements, the established norm for tenant representation and commission payment typically leans toward the landlord covering these costs.