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Do I really have to pay a "broker" fee to the management company?

By Virginia K. Smith  | June 8, 2015 - 1:59PM

Q: We came across our apartment in Williamsburg via an acquaintance who was moving out. We immediately wanted it, so they put us in contact with building management, who then required us to pay a broker fee with a check made out to their own company!

Is that legal? It seems like a conflict of interest to be building management and the broker, not to mention that we didn't even find the apartment through the broker.

A: What your the management company asked may well have been legal, but you're right to be suspicious, say our experts.

It's very common for property managers to be licensed real estate salespeople, saysThomas Usztoke of Douglas Elliman Property Management, and therefore not necessarily a conflict of interest for them to collect a fee.

Whether or not your particular situation was ethical is a little murkier, however. "It depends if the Managing Agent holds a valid real estate license from the New York Department of State, and has an Exclusive Right to Lease agreement," explains Sotheby's International Realty agent Gordon T. Roberts "If both hold true, it would be proper for them to collect a broker’s fee, regardless of how you discovered the apartment’s availability. That said, this fee is normally collected when you sign the lease, not before."

After your initial referral, Roberts says, the Managing Agent should have given you a NYS Agency Disclosure form stating that they represent the landlord, and then had you sign a commission or broker's fee agreement. After that, they should have had you submit your application, along with the accompanying fee and a credit check fee.

"Those are the checks you'd be writing first—not a broker's fee simply to go through the application process," says Roberts. "The sequence you describe seems out of order, which could be a red flag. Although it’s easy to get caught up in the heat of the moment, especially in a fast-moving market, it’s in your best interest to at least consult an real estate attorney, and advantageous to work with an experienced real estate agent."

If, however, the management did go about things the proper way, Usztoke says, "no conflict exists other than dashed expectations of securing a 'no fee' apartment."


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