The rental landscape is changing, but two things remain true:
Nothing is ever free.
Rent is as much of a fee as paying your broker is. Both are an exchange of money for a service, not for something concrete that you own.
Confused? Intrigued? Think I’m wrong? Let’s get into this.
It’s almost the end of the summer, so I want to talk one more time about rentals before we move into aggressive buy/sell season.
I’m going to talk today about broker fees (or commission, if we are using the honest term), everyone’s least favorite thing when looking for rentals. I have watched people forego beautiful, perfect apartments because of the word “fee.” It’s like the word “tax” — neither is inherently bad, but we view them as bad, and this connotation allows us to be manipulated by everyone from Congressional hopefuls to real estate start-ups. Reducing taxes is not necessarily a good thing, and neither is no fee. Because nothing is free, and you end up paying for it somewhere. Also, as you may not realize, rent is basically just a fee, since you do not build equity and it’s not going towards anything you own. You are paying for a service, just like if you’re paying an agent to help you secure an apartment (because it’s not just clicking a button and voila, all done).
But let me back up a bit. First, no fee means you are paying a higher rent. Period. If a landlord is covering his or her’s agent’s fee, he’s building that into the rent. If it’s a building with on-site management handling rentals, their salaries are included in the pricing of the apartments. If, when you are looking at apartments, you amortize a 15% fee over one year, then of course a no fee is going to look like a better deal. But stay for more than one or two years and you pay out more money overall.
Second, no fee apartments make up only a tiny fraction of the available inventory, and were only 13% of apartments on StreetEasy this summer. Let that sink in: you could only see 1/10th of what you would normally view if you insisted on not paying a fee. If you are working with an agent and say you won’t pay a fee, this is an even smaller number.
Third, your apartment is not as sweet as you think it is. The number of times I have walked into someone’s fancy, new, no-fee apartment and immediately realized they are overpaying…it happens a lot. You are not the negotiator you think you are. You are not the keen real estate sleuth you think you are. You are a tenant, an amateur (unlicensed), and you have no leverage and limited experience compared with the people you are dealing with. Obviously, there are exceptions when you find things on Craigslist or take over a lease from a friend, but if you’re dealing with the traditional routes like looking on StreetEasy, you are not on an “inside track,” you’re just looking at a bunch of normal apartments with fees built in and the occasional scam.
Fourth, real estate agents used to just be gatekeepers, but now we have the internet and everyone has access to roughly the same inventory. Your agent’s job is to protect you and get the keys in your hand — with sales and with rentals — more than it is to find inventory. This isn’t a fee for opening a door; it’s paying for their time and experience and aid the same way you’d pay an attorney or doctor. We are licensed. We are professionals — some of us are maybe more of that than others — which is why you should choose wisely, so your money is going to work for you.
If your thought process hearing the above is “cool, I’ll just work with an agent who will protect me and we will only look at no fee places,” don’t think that way. Your are limiting your options even further (maybe 5% of the market), and you are telling your agent that, “Hey, I know you run your own start-up, and the only money you make is from commission. You have to pay massive amounts out of pocket to stay alive. You need to cover insurance (both professional and health); you pay for your own housing; you pay the company where you work for the privilege of working there; you get ZERO salary. You paid to get licensed, and you work full time to learn as much as you can to help your clients. But your expertise isn’t worth me paying you for, even though I just showed you proof that I make $200,000 a year, guaranteed, on a schedule. I expect you, who made $30,000 last year (before taxes) and all in the span of two months, to work for me for free, because I do not value what you do. My job is worth paying someone for, and yours isn’t. But I still want your help. ” And this isn’t hyperbolic. It is exactly what you are saying.
Fifth, and the real point that I’m trying to get to here, is that RENT IS A FEE. You are paying a fee for the privilege of living somewhere you don’t own. Anything other than ownership is paying a fee, and ownership comes with its own fees on top of building equity. “But Anna, we are paying for a service! A fee is just a fee!” No, no it isn’t. There is something in our culture at the moment where people want the world for free, and they think that by aggressively refusing to pay people for their time they’re somehow winning, when in reality I see how it affects them negatively. People don’t want to pay taxes but then complain about crumbling infrastructure. They want government services but abhor the idea of paying the government for anything. Everyone wants a deal; everyone wants a bargain. But the people I know who are the most like that are also the ones who are always strapped for cash, not because of salary but because of mindset.
Should you look at no fee? For sure. But should it be the ONLY option you give yourself? Only if you absolutely cannot move the money around to make a fee apartment work. Which I understand! We all have our limitations, like my not able to hire a lawyer to deal with my landlord and having to DIY my case. But I fully acknowledge an attorney would be the better choice. I’m not shaming anyone for not having money, but I’m saying that if you DO have it, you aren’t being a “savvy investor” by refusing to pay an agent for his or her time. You’re being a dick, and you’ll probably end up in a worse apartment than you would have otherwise. And again, you still aren’t building equity, so your whole life is a fee.
If you fall into this camp, just suck it up and buy something, because BUYERS DO NOT PAY THEIR AGENTS! And you probably have a lot saved from all the times you decided not to pay someone for their services ;-) (jk babes…kinda).