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Q. A friend of ours told my wife and I about an opening in their building and gave us the number of their super. We called him, he showed us the apartment, we loved it, and told him we wanted to apply.
The management company told us we had to pay a broker fee, even though we never even spoke with an agent They wanted this "broker fee" in cash. It seemed shady, but we paid it anyway. Is this “broker fee" legal? If not, how would we go about getting our money back?
A. Yes, the broker fee is legal assuming that the firm collecting it maintains a valid brokerage license with the Department of State (which you can check here) and provides you with an Agency Disclosure that looks like this. If they fail to provide it, they may not be entitled to keep their commission.
When a landlord engages a broker to list its property, they aren’t necessarily doing so for the prospective tenants’ benefit. Imagine the business relationship as a conversation:
- Landlord: "Will you market my apartment for me, pay for the advertising, review applications, put together a lease, collect the checks, and complete the tenant file for me?"
- Broker: "I can do that, but not for free. We’ll have to sign a contract that states that if anyone rents your apartment during the term of our agreement, I’ll be paid. I’ll do the work up front and pay for advertising costs without advance payment, but if anyone rents the apartment, no matter how they find it--even through an existing tenant or the super--I still need to be paid."
- Landlord: "I think in the current market tenants will be willing to pay your fee in order to rent the apartment. Thus, I can agree that my prospective tenants will need to pay you but I will not."
- Broker: "Agreed!"
As you can see, it doesn’t matter that you never interacted with the broker. It only matters that the broker was granted the exclusive right to rent the apartment by the landlord and that they are duly licensed in the state. If they were, you had no choice but pay it if you wanted the apartment, unless you submitted an offer asking the landlord to pay some or all of the broker’s fee--though in the current market, that offer likely would have been turned down.
All that said, the fact that you were asked to pay the broker’s fee in cash is definitely unusual and even a potential red flag. While not illegal by itself, it is highly atypical. Furthermore, if the person who requested it is the agent of a brokerage firm and not the principal broker it calls into question whether they turned over the funds to their firm as required by law or simply pocketed the money for themselves. If you question it, you could always reach out to the person named as the principal broker on the Department of State website linked to above to inform them of the circumstances of your transaction.
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.