Rent Coach: Broker says there's a fee. Sign says there isn't. What gives?
Rent Coach

Rent Coach: Broker says there's a fee. Sign says there isn't. What gives?

By Mike Akerly  | December 6, 2012 - 10:30AM

Q. My friends and I have been working with a broker for about three weeks to find an apartment together. She seemed very reliable and on top of her game.

Last weekend she took me to see the perfect apartment in a newly renovated building. The first time we saw it was at night and we entered the building from the side entrance. I knew on the spot that we would want to move forward with the apartment.

After the showing, we discussed the application requirements in detail and she said there would be a 12% broker’s fee.  I knew from the beginning that we would end up paying a fee, so this was no surprise.

However, the next day I took my roommates back to check out the street, the neighborhood, etc.  When we walked by the building from a different direction than my first visit, we noticed that there was a large banner that read “No Fee Apartments.”  

Now I feel like our agent is trying to take advantage as there is not supposed to be a fee to rent these apartments.  My roommates and I certainly don’t want to pay one if we don’t have to.  What should we do?

A. It sounds like the building that your broker took you to is what’s known in the industry as a “collect your own fee” listing.  What that means is, the landlord tells the brokerage community that they are free to bring a client to the building but that the broker must collect their fee from their client (i.e. the landlord won’t be paying the broker a fee). 

When the landlord markets the listing to the public, it’s known as a “no fee” listing because a prospective tenant will not need to pay a fee to the landlord or the landlord’s agent in connection with the rental. 

Sometimes the landlord will go even further and offer an “O.P” to the renter's broker which means that the “owner pays” all or part of the broker’s fee for the tenant.  O.P.’s are not common in the current market as landlords feel that they have sufficient leverage to leave the payment of broker’s fees to prospective renters.  However, brokers do have an obligation to disclose to their clients the receipt of any fees from other parties involved in the transaction.   

It is important to note that people generally do not pay fees to “rent apartments.” They pay fees for a broker’s services in relation to the rental of an apartment.  If you located the apartment on your own and represented yourself, the landlord would not have charged you a broker’s fee.

In this case, you engaged a broker to assist you in locating a suitable apartment, advise you on the state of the market with regard to pricing, concessions, etc., to assist you in the preparation of the application, and to negotiate the terms of the lease on your behalf.  Your agent took you to the listing knowing that they would be paid by collecting their fee from you after their services were provided.

Looked at this way, you should not feel as though your agent has taken advantage of you.  To the contrary, she found you what you were looking for – “a perfect apartment in a newly renovated building – and thus, has earned her fee assuming that your application is approved and a lease is signed. 

Some clients feel that their brokers should not take them to “no fee” listings.   In that case, however, either the agent would be doing a great disservice to their client by failing to show them all available properties on the market simply because of the fee structure, or the renter might be trying to create a situation in which they seek out “no fee” listings on their own while at the same time engaging a broker to show them “fee listings.”  The latter is an arrangement that could be agreed to by both parties, but most successful agents would not be willing to service a client who they felt they had to compete with to find apartments. 

Keep in mind that your broker likely lowered her fee because of the fact that the listing was a “collect your own fee arrangement.”  In the event that there had been a listing broker representing the landlord it’s likely the fee would have been higher (probably 15%). 

Mike Akerly is a New York City real estate attorney, landlord, and real estate broker. He is also the publisher of the Greenwich Village blog VillageConfidential.     

Note: The information provided here is for informational purposes only. It should not be construed as legal advice and cannot substitute for the advice of a licensed professional applying their specialized knowledge to the particular circumstances of your case.

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