New York City Broker Fees Explained
New York City Broker Fees Explained
(And Some Practical Tips to Save You Thousands)
What is the big deal about broker fees in NYC? / What is a no fee apartment?
People who have never lived in New York City are often shocked to discover the idiosyncrasies of the apartment rental process here, in particular the astronomical broker fees. Here is my explanation of how broker fees work, and some tips on how to navigate the system and save yourself some cash – possibly a lot of cash.
Elsewhere in the U.S., apartment rentals are regularly transacted directly between the owner and the renter without an agent. And when an agent is involved, it is typically owner who pays the agent’s fee.
In contrast, apartment rentals in NYC typically involve two real estate agents: one representing the owner and one representing the renter. Furthermore, it is standard for the renter to pay the fees of both agents.
In Manhattan and some parts of Brooklyn, this fee normally amounts to a one-time payment of 15% of the annual rent, due in full prior to signing the lease. Assuming the average rent in Manhattan, which is now over $4,190 per month (according to Douglas Elliman) , a 15% fee would equate to a payment of $7,550.
This fee typically applies regardless of the agent’s involvement in the transaction or the services provided. Nor does it matter whether the agent brought the apartment to your attention, or whether you found it online yourself.
Is this extortion?
At first glance it does not make much sense. If finding an apartment is free nearly everywhere else, why should it cost a small fortune in New York City? Without taking a position on the “fairness” of NYC broker fees, here are a few plausible explanations.
- New York City has an extremely low apartment vacancy rate, which makes finding an apartment notoriously difficult. Because of that fact, agents face an uphill battle. Their costs in time and money are high, and they spend a considerable amount of time catering to clients who never transact.
- Because finding an apartment in NYC is so difficult, the services of a good agent are likely to save you a lot of time and frustration.
- Another piece that is often overlooked is that broker fees, in a sense, come out of the pockets of both sides. In most of the U.S., it may seem like renting an apartment is free because the landlord pays the agent. But in reality, some of that fee is passed on to the renter in the form of an increased monthly rent. Similarly, when the renter pays the fee, landlords are willing to accept a lower rent than they would if the fee were being paid by them.
Many people would disagree with these points, though for anyone who is motivated enough to dig into it, there is some good academic research backing them up. In any case, broker fees are just a reality in NYC, so best to come to terms with them.
Is there any way around the broker fees?
If you are willing to put in a little work, there are indeed ways of reducing the broker fee or even eliminating it entirely. Below are a few of the tactics to consider.
Tactic #1 : Avoid the need for there to be a second agent involved
When you find an apartment online, make sure you reach out to agent that is listing the apartment (the one who represents the owner). This will not necessarily be the agent whose contact information you see on the listing. On Zillow, for example, you often have to scroll all the way to the bottom to find the listing agent.
If you are dealing with the listing agent, he or she can act as both the renter’s and the owner’s agent. And since the fee does not need to be split two ways, the agent is likely to accept a lower amount.
Alternatively, if you are already working with an agent, make sure you are clear on whether he or she is also the listing agent for the apartments you are being shown. As before, the agent is more likely to accept a lower fee if there is not another agent involved.
In the case of some large buildings, apartment listings may be handled in-house, in which case there would no listing agent involved at all. So when viewing apartments with an agent, be sure to ask if this is the case. As in the above situations, if there is no listing agent involved, all of the fee goes to the your agent, which means the commission should be lower.
In some cases, large buildings may pay agents a fee for bringing them new tenants. In such cases, some agents may try to double-dip by charging the renter a fee as well. Agents have a legal obligation to disclose any fees they receive, so you should not feel shy about asking an agent directly if they are collecting a fee from the other side.
Tactic #2: Negotiate
Although a 15% broker fee has become somewhat standard, it is not uncommon for broker fees to be negotiated lower. If you walk away from the transaction, the agent is left with nothing, which gives you as a renter some bargaining power. Just know that apartments do not stay vacant for long, so playing hardball carries the risk of losing the apartment.
In some cases, an agent may be more willing to negotiate if you offer something to sweeten the deal, for example:
- If you are happy with the service, offer to refer a friend
- Offer to post a good review on Yelp
- If you work for a company that relocates employees, an email to your HR department recommending the agent for the company relocation package could lead to a lot of business for the agent, and could go a long way toward easing your negotiation.
Also, be aware that if there are two agents involved, the starting point of the negotiation is really 7.5%, not 15%. And a large portion of that 7.5% goes directly to the brokerage. So the amount of room that your agent actually has to negotiate may be smaller than you think. Some brokerages do not even permit their agents to accept fees below 15%, so you may consider inquiring upfront about the fee and whether it is negotiable.
Finally, two important, and common, pitfalls to watch out for:
- Never accept a fee higher than 15%. If an agent claims that anything above 15% is normal, it is a bluff
- Do not sign anything until you are ready to submit an application for an apartment. Some agents will ask you to sign exclusivity agreements when they first meet you. This is not prohibited, but it is a trap. Signing can lock you into unfavorable terms, and can drastically restrict your options later.
Tactic #3: Find a no fee apartment on your own
If you have a high tolerance for frustration and plenty of time to spare, you can search for a no fee apartment on your own. It can be a painful process, though it is very common. If you choose to go this route, here are a few points to keep in mind.
- Most no fee apartments are in large, high-rise buildings. So if it is a unique, pre-war loft you have in mind, you are unlikely to find one without a fee.
- When websites speak of “no fee,” they often do not distinguish between a listing that truly involves no fee and one in which the owner pays. Just because you are not cutting the check, does not mean you are not paying. When the landlord pays the broker fee, it gets passed through to you in the form of higher rent. Many people disagree with this, but as someone who works with this data on a daily basis I assure you it is true.
- Often, no fee listings are used as a bait-and-switch tactic. An apartment may be advertised online as no fee, but once you have viewed it, fallen in love and are ready to move forward, you may be presented with an “apology for the confusion” and take-it-or-leave-it offer that requires you to pay a fee.
- It is also not uncommon for agents to post a too-good-to-be-true no fee listings, which will be no longer available when you show up for a viewing. And since you are already in the area, you will instead be taken to see other apartments that are far less enticing.
Personally, I have been through the NYC apartment search many times, in some cases with the help of an agent and in other cases without. In my opinion, agents offer tremendous value in exchange for their fee. In addition to helping you find the apartments, a good agent’s local insight and relationships can help you negotiate a lower rent, or help you win an apartment that has received other applications.
However, if you have the time to spare I would not discourage anyone from going the no fee route, as the savings can be huge. Most of the New York City apartment rental websites offer a filter option to view only no fee apartments. Personally I have found Craigslist and Urban Sherpa to have the best selection.
If you have any feedback for how we can make this article more useful, or if you have any questions about broker fees that were not answered in this post, please feel free to contact us.