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How to Broker Fees Work in New York City
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New York City Broker Fees Explained
 

Why is there such a big deal made over broker fees in NYC?

People who have never lived in New York City are often shocked to discover the idiosyncrasies of the apartment rental process here, in particular the astronomical broker fees.  Below is an explanation of how broker fees work in NYC, and some tips on how to navigate the system and save yourself some cash – possibly a lot of cash.

In most cities in the U.S,. it is customary for an apartment rental to be transacted either through a single listing agent or directly between the renter and the landlord, without the involvement of an agent.  When there is a listing agent involved in the transaction, the fee is typically paid by the owner.   In either case, there is no need for the renter to pay a broker fee.

However, in NYC there are typically two real estate agents involved in every apartment rental transaction: one representing the owner and one representing the renter.  Furthermore, the responsibility is typically on the renter to pay the fees of both agents.

In Manhattan and some parts of Brooklyn, this fee normally amounts to a one-time payment of 15% of the annual rent, due in full prior to signing the lease.  Assuming the average rent in Manhattan, which is now nearly $4,000 per month, a 15% fee would equate to a payment of $7,200.

It is also important to point out that this fee typically applies regardless of the agent’s involvement in the transaction or the services provided.  Nor does it matter whether the agent brought the apartment to your attention, or whether you found it online yourself.

At first glance it may seem hard to justify why a process that is free throughout most of the country carries such a high cost in New York City.  Without taking a position on the “fairness” of NYC broker fees, here are a few things to keep in mind.

  • New York City has an extremely low apartment vacancy rate, which makes finding an apartment notoriously difficult.  Because of that fact, agents face an uphill battle in seeking out and matching up renters and apartments.  Their costs in time and money are high, and they spend a considerable amount of time catering to clients who never transact.
  • Because of this dynamic, the services of a good agent are likely to save you a lot of time and frustration.
  • Another piece that is often overlooked is that broker fees, in a sense, come out of the pockets of both sides.  In most of the U.S., it may seem like renting an apartment is free because the landlord pays the agent.  But in reality, some of that fee is passed on to the renter in the form of an increased monthly rent.  Similarly, when the renter pays the fee, landlords are willing to accept a lower rent than they would if the fee were being paid by them.
Many people would disagree with these points, though for anyone who is motivated enough to dig into it, there is some good academic research out there backing them up.  In any case, broker fees are just a reality in NYC, so best to come to terms with them.

Are there any other options that do not require such a large payment?

If you are willing to put in some work, there are indeed ways of reducing the broker fee or even eliminating the need to pay a fee entirely.  Here are a few ideas to consider.


Option #1 : Avoid the need for a second agent to be involved

If you find an apartment online that you are interested in, find the agent that is listing the apartment on behalf of the landlord and work directly with him or her.  In this case, there would be only one agent involved in the transaction (acting as both the renter’s and the owner’s agent).  And since the fee does not need to be split two ways, the agent is likely to accept a lower amount.

Alternatively, if you are already working with an agent, make sure you are clear on whether he or she is also the listing agent for the apartments you are being shown.  As before, the agent is more likely to accept a lower fee if there is not another agent involved.

In the case of some large buildings, apartment listings may be handled in-house, in which case there would no listing agent involved at all.  So it is also important to be clear on whether this is the case for any of the apartments that you are shown.  As in the above situations, if there is no listing agent involved, all of the fee goes to the renter’s agent, which means he or she should be willing to accept a lower amount.

In some cases, large buildings may pay agents a fee for bringing them new tenants.   In such cases, some agents may try to double-dip by charging the renter a fee as well.  Agents have a legal obligation to disclose any fees they receive, so you should not feel shy about asking an agent directly if they are collecting a fee from the other side.
 

Option #2: Negotiate

Although a 15% broker fee has become somewhat standard, it is still not uncommon for broker fees to be negotiated lower.  If you walk away from the transaction, the agent is left with nothing, which gives you as a renter some bargaining power.  Just know that apartments do not stay vacant for long, so playing hardball carries the risk of losing the apartment.

In some cases, an agent may be more willing to negotiate if you offer something else in return such as a referral to someone you know or a good review on Yelp.  If you work for a company that relocates its employees, an email to your HR department recommending the agent for the company relocation packages could lead to a lot of business for the age, and could go a long way toward smoothing your negotiation.

Finally, be aware that if there are two agents involved, the starting point of the negotiation is really 7.5%, not 15%.  And a large portion of that 7.5% goes directly to the brokerage.  So the amount of room that your agent has to negotiate may be smaller than you think.

 
Option #3: Find a no fee apartment on your own frustrated

If you have a high tolerance for frustration and plenty of time to spare, you can search for a no fee apartment on your own.  It can be a painful process, though it is not at all uncommon.  If you choose to go this route, here are a few points to keep in mind.

  • Most no fee apartments are in large, high-rise buildings.  So if it is a unique, pre-war loft you have in mind, it is unlikely that you will find such an apartment with no fee.
  • When websites speak of “no fee,” they often do not distinguish between a listing that truly involves no fee and one in which the fee is paid by the owner.  In either case, the renter does not pay a fee, so many people do not case to differentiate.  But if you believe that the broker fee gets passed on to the monthly rent, you may appreciate the distinction.
  • Often, no fee listings are used as a bait-and-switch tactic.  An apartment may be advertised online as no fee, but once you have viewed it, fallen in love and are ready to move forward, you may be presented with an “apology for the confusion” and take-it-or-leave-it offer that requires you to pay a fee.

It is also not uncommon for agents to post a too-good-to-be-true no fee listings, which will be no longer available when you show up for a viewing.  And since you are already in the area, you will instead be taken to see other apartments that are far less enticing.

Personally, I have been through the NYC apartment search many times, in some cases with the help of an agent and in other cases without.  In my opinion, agents offer tremendous value in exchange for their fee.  In addition to helping you find the apartments, a good agent’s local insight and relationships can help you negotiate a lower rent, or help you win an apartment that has received other applications.

However, if you have enough time to spare, I would not discourage anyone searching for yourself, since the savings can be significant. Most of the New York City apartment rental websites offer a filter option to view only no fee apartments.  Personally I have found Craigslist and Urban Sherpa to have the biggest selection.

Revaluate also hosts a no fee apartment map, which you can use to explore the no fee buildings in each neighborhood and reach out to them directly.



References


External Links
http://www.revaluate.com/blog/nyc-broker-fees-explained/
 
 
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