Happy Friday! It’s finance time.
A friend told me about this on Wednesday and today it came through in my inbox, so I got to take a closer look. A city council member, Keith Powers, is proposing a bill that would drop broker fees on rentals from 15% to a maximum 8.3%, or one month’s rent. While I completely support the thought process behind it — reducing the prohibitive fees that come with getting an apartment in NYC — I’m concerned that it won’t have the intended effect.
First, I’d like to remind people that brokers are not paid a salary. Zero. We do not have health insurance, benefits, etc. Yes, Compass now offers insurance, but it’s mostly helpful for families as it caps the maximum you can pay and covers existing conditions. For me, it would be $500+ a month. Last year I made more than I did for the celebrity publicist ($26,000 before taxes, no benefits) but less than the average real estate agent in NYC ($48,000 before taxes, no benefits). And all of my and other agents’ income is from commissions, either in the form of broker fees in rentals or commissions paid by the seller in sales deals.
Which brings me to my point: in sales the SELLER pays both the buyer’s agent and his/her own. In rentals in many cities, the landlord pays the broker fee. NYC has always been an anomaly there, and I honestly don’t know the reason. I’d speculate it has to do with a hyper-competitive market and landlords with a LOT of power, but again, that’s speculation. I think a better law than capping broker fees would to make the landlord responsible for paying his agent to market the property. Essentially, it would force all landlords to make their apartments “no fee,” and you would pay an 8.3% fee to your agent if you wanted to work with someone. (Which MOST people should do. I’m shocked at how incorrect smart people are about renting in NYC. I’m sorry, guys. I love you but you are not the negotiators you think you are against landlords.)
Under this proposed law, it’s still the TENANT who has to pay the landlord’s broker. I have never had a client upset with my fee by the time it was due (seriously very good at my job), but I have had clients furious they had to pay the landlord’s broker as well. Capping at 8.3% just means that both agents get paid less, and the landlord still doesn’t have to pay shit, even though he’s the one with the property, the money, the income, etc. I would love to talk to Mr. Powers about why his proposal doesn’t ask for this instead.
So the tenant is still paying, and there will be additional spillover problems for them. If you bring your own agent to the table, he or she will have your best interests at heart rather than being a “dual agent.” The city knows this, which is why under REBNY (real estate board of NY) laws listing agents are required to co-broke. This means if I come with my client to view an apartment, the agent is required to let us apply and split the commission with me. But in the summer especially, some agents do not follow this law. I once tried to push back on it and had a landlord call me and threaten to pull his listings from other Compass agents if I didn’t back down. If it’s already a problem when the listing agent wants to keep the full 15%, imagine how bad it will get when it drops to 8.3%.
And while yes, depending on the price point this can be qualified as greed, there’s also a huge level of expense involved in marketing an apartment. Professional photos and a floor plan cost hundreds of dollars, and StreetEasy now charges $4.50/day to post your listing on the site. As Zillow (StreetEasy’s owner) is a predatory company, they will likely keep increasing this amount. Most apartments are online for at least two-three weeks because you can’t take it down until leases are actually signed. Plus there’s the agent’s time answering inquiries & showing, expense for making it a “featured” listing or marketing on FB/Instagram, and the actual application and lease signing. Let’s say an apartment is $2,500/month, and leases are signed three weeks after it is first put online. That’s $94.50 in StreetEasy fees, $300+ for photos and floor plan, and then their time/any other marketing they do. If they co-broke an 8.3% fee, the tenant writes a check for $2,490. Half goes to the applicant’s agent, so the listing agent’s half is $1,245. This is then split with the listing agent’s brokerage. Let’s assume a 50/50 split for the moment, as a lot of rental agents start at not-great splits. The listing agent now gets his/her payment for $622.50, from which he/she then deducts the roughly $400 expenses, NOT INCLUDING any time or additional marketing. Before taxes, the listing agent would take home $222.50 for three weeks of work. I very much understand why they wouldn’t want to co-broke.
Additionally, at least during the adjustment period, this will incentive a black market where people who can afford to pay 15% will offer to do so to win the apartment. Much like prioritizing people who come direct over co-broking, it’s illegal, but as one is very much in practice I can only assume the other would follow. Some people suck, guys!
Maybe this is a lot of math for a Friday, or maybe it seems like I’m trying to make you feel bad for people that society thinks of as skeezy. But really, not all agents are sleezy and I agree with the sentiment, just not the execution. I worry that in trying to help one little guy (the tenant) you’ll hurt another little guy (rental brokers) while letting the big guys (landlords) still not pay.
I don’t think tenants should be paying 15% in most circumstances, but the answer isn’t lowering the commission; it’s making landlords pay their fair share.