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Why Are NYC Broker Fees So High? A Former Rental Agent Explains

By Anonymous  | February 17, 2015 - 8:59AM

One of the most painful parts of renting an apartment in New York is the broker’s fee—payable upfront, and in an amount usually running into the thousands of dollars, or between 12 and 15 percent of the annual rent. To many newcomers to the city, and even to some veteran renters, this represents a substantial chunk of change, and they often leave the process wondering what the fee actually paid for, why it was so high, and whether they could have saved money in the process.

As a college student, I spent a summer working as a rental agent at one of New York’s biggest brokerages, where I learned about fees firsthand. Here, my take on some of the most common questions New York renters have:

Why are rental broker fees so high?

The majority of the payment covers flaky customers. Only one out of every 10 people who responds to an ad and meets an agent will actually rent an apartment from that person—or at least, that's what they told us during training—which means that about 90 percent of the work an agent does is entirely unpaid.

Case in point, I met with one client three times this summer and showed him about 15 apartments, but he was dissatisfied with all of them. I finally found a place I thought was perfect.  After two excited emails and three unreturned phone messages, I finally got him on the phone and shared the news, only to be informed that he’d signed a lease earlier that week. Oh. How nice of you to let me know. 

Aside from that, almost all brokers in New York are independent contractors, not employees, meaning their sole income is that fee. The full cost of health and life insurance, retirement contributions, and vacation and sick days come out of their pockets, and they don't get overtime or bonuses. Brokers also have to pay for marketing expenses (mailings, ads on websites like NakedApartments), client gifts and courtesies (paying for a cab ride between apartments, for example), copies of keys, and other costs, all of which can easily add $50 a week to an agent’s expenses and often much more.

Where does my money go?

Let’s assume you’re renting an apartment for $3,500 a month. You write a check to a rental agency for 15 percent of a year’s rent, or $6,300. Here’s where it goes:

  • The landlord’s broker: If a building owner is working exclusively with a broker to market the apartment, that broker will get half the fee, or $3,150. (Yes, the landlord’s cost to advertise this rental is coming out of your pocket.) If, instead, this is an open listing—meaning that the landlord allows any agent  to advertise the apartment—then 10 percent of the fee, or $630, will go to a person at your agent’s company who maintained the listing and arranged access to the apartment, often a veteran agent, manager or someone in the corporate office. Your broker will prefer this setup, as he'll get almost twice as much money (more on this in the next section), but the majority of my deals involved a landlord’s broker.
  • Your agent: From what’s left, your agent gets a cut depending on his “split” with the company. While it’s typically 50 percent, meaning he’d be entitled to $2,835 for an open listing or $1,575 for a listing with a landlord's broker (see above), some top-ranking agents earn a split of 60 percent or more, and some newbie agents earn less than 50 percent. (For example, at my firm, new agents started at a 35 percent split until they did six deals.)
  • The rental agency: Your broker’s company gets whatever’s left.  

What should I expect to get for the fee?

Showing you apartments is a big part of the service you'll get. But a good broker will also:

  • Gauge your priorities and tactfully discover what you're willing to forgo
  • Educate you (and your guarantor, if necessary) about neighborhoods, market trends, potential trade-offs, and what to expect from the rental process
  • Help you stand out from other applicants 
  • Communicate regularly and meaningfully
  • Share insider knowledge on which buildings and blocks to avoid, which apartments look nice but would be nightmarish to live in, listings that haven't yet hit the market, and potential deals 
  • Represent your interests with the landlord, including actively negotiating rents, lease terms, move-in dates, and exceptions to rules (such as pet weight limits).

How do I get the best service for my money?

Since your fee is pegged to the rent, you'll pay the same amount for an experienced agent as an agent who doesn't know what she's doing. And as bad as it may sound, I put more effort toward a client looking to rent for $7,000 a month because I knew that closing that deal would net me the same as closing two or three smaller deals, with only about 1.5 times the effort. 

But another major factor in the level of service is your own involvement in the process. If you strike me as a serious client with realistic expectations who is intent on working with me, you will be at the top of my list when a new apartment hits the market or there is a price drop. If you try to haggle the fee with me, ask to see nicer apartments that are also less expensive and better located, or otherwise give off a vibe that tells me you’re not going to rent anything with me anyway, I’m probably not going to put that much effort toward finding you a place. 

On a related note, I would always recommend sticking with one agent (which is more about demonstrating loyalty than signing a formal contract).  If a client compares every apartment I show to the similar but less expensive/better located one their other agent showed them, or if they tell me they love a particular apartment and say that I was very helpful but they want to meet with some other agents “to get a better feel for the market,” I will be less inclined to help them because there's a good chance they’ll rent through another agent, and I won't get paid.

How do I haggle down the fee?

There is perhaps nothing more agonizing and frustrating than a client who aggressively negotiates the fee. Real estate agents provide a professional service. I find it mind-boggling that clients find it acceptable to haggle, when they would never think of negotiating legal, medical, or other similar fees.

That said, if you are dead set on paying less than the full fee, I recommend the following technique: 

Go out with your agent a few times over a couple of weeks, but change up what you’re looking for just enough each time, ensuring the agent works like a dog to find you a place. Eventually, get approved for a rental. (Your agent will breathe a sigh of relief.) Then, the morning of the lease signing, call and say you refuse to pay more than a month’s rent as the fee.  He will hate you forever, and you definitely won’t get him down to a month’s rent, but you will likely be able to negotiate a lower fee.  Note, however, that the agent will probably never work with you again, and he will most definitely talk about how awful you are with the other agents at his office.

What exactly is a “no-fee” apartment?

There is no such thing as “no fee” when working with a broker.  When you see an apartment listed as “no fee,” it really means “no fee for you.”  With these apartments, landlords cover the broker’s fee to entice agents to show the apartment, and tenants to rent there. 

Sounds like a sweet deal, right?  Not so fast.  In such a tight rental market with low vacancy rates, it’s best to do some research before jumping on a no-fee.  There’s usually a catch: sometimes the apartment is in an undesirable neighborhood or a not-so-great building that’s trying to seem nicer than it is. (There are a few of these in East Harlem that were notorious among agents, such as Riverview and the Miles and the Parker). In other cases, the apartment has a weird layout with bad lighting or other problems. Some landlords will also offer to pay the fee, but only if you lock yourself into a two-year lease.

The principal exception to this is fancier new developments, which are simply trying to get all of their units rented out as quickly as possible.


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