Calculating disbursals on rental transactions is trickier than you would think. You must know and understand the issues which govern what can and cannot be done with the escrow funds held in a rental transaction.
The usual rental transaction involves one of the brokers collecting a sum equal to three times the monthly rental. Most often this is expressed as “first, last and security” although the actual disposition of the money must be studied from the paperwork for the individual transaction, sometimes the funds will be allocated to “first and two months security” or some other formula.
Either way, Florida law prohibits making any deduction from the prepaid rent and/or security deposit received into trust. These must be conveyed to the landlord intact and free of deductions since they aren’t actually the property of the landlord, they belong to the tenant until he has either fulfilled his lease requirements or has defaulted and the landlord asserts a claim. So a broker is not allowed to deduct his commission from any part of the trust money that represents advance rent or security deposits.
Since the usual commission on these transactions is 10% of the gross lease value, you can see that in almost all cases, the total commission amount is greater than the single month’s current rent held in trust. This inability of the broker to deduct the full commission from the usual three months rent paid at move-in is a constant nuisance to listing agents. The way it works is as follows:
If we are the listing agent, the other side usually deducts their full commission and issues us two checks: one to the landlord for the security and prepaid rent and the other to Buy the Beach for the “overage” (which is less than the full commission. We then (meaning the listing agent) have to arrange to trade that check to the owner for the missing balance of the commission.
If we are the selling agent, the deal works the other way around: Buy the Beach gets retains the full commission, cuts the other broker a check for the remainder of the first month’s rent and issues a check to the landlord for the prepaid rent and security. Hopefully the other broker takes that check to the landlord and gets him/her to fork over the missing piece of their share of the commission.
If we have both sides of the transaction, we retain the entire first month’s rent and, if that is not sufficient to pay the commission, the listing agent is responsible to get in touch with the owner and obtain the missing portion of the commission in trade for the security and last month’s rent.
Sometimes you will meet an agent who claims to have never heard of this process or thinks you are lying if you tell him he’s getting a disbursal on this basis. In that case, we can do the following:
We will retain our share of the commission and pay the entire overage to the other broker’s Trust Account. Once they have it in trust, they are responsible to account for it correctly.
If we are holding the escrow for a rental it is imperative that you review the checks to be issued in advance with the other broker and inform them of how the checks will be cut. if they object, this is the time to sort it out.
If the other side is bringing the checks to trade for possession, it is best to contact them in advance and demand to know the exact amounts they are cutting the checks for and how they will be made payable. If they are not in accord with your calculations, review them with me before arranging to accept them.
After you have reviewed the disbursal procedure with the other agent (not before!) please submit your disbursal request. Please call me if 24-hours has gone by and I have not acknowledged your Disbursal Request.