Many renters are still confused about the truth behind fee versus no-fee rentals. Let’s break it down into all of the different fee scenarios, with the basic understanding that the agent fee is always paid in some way, shape, or form (no, we don’t work for free):
- The “no-fee” rental: really a misnomer, this refers to the situation in which the landlord is paying the broker fee. This could be the case for many reasons: excess inventory, over-priced apartments, a desire to move the apartment as quickly as possible, or needing to keep rents higher on the bank books. Whatever the reason, the landlord believes s(he) must incentivize tenants and their agents to view and rent the said property; the easiest way to do that is to prevent the tenant from incurring the out-of-pocket expense of paying the fee. Rental price negotiability is lower than in other situations, as the landlord is already incurring out of pocket costs.
- The fee rental: this refers to those apartments where the landlord is not incentivizing the broker to show or rent the apartment. Often, fee apartments are therefore either in demand or unique, providing the landlord with enough confidence that they will rent without putting them “on sale” so to speak. Such apartments are either represented by a broker as “exclusives” or are “open listings”. The latter means that every agent receives the same compensation for renting the apartment (rather, whatever fee the renter and agent agree to), and that fee is paid by the renter. Rental price negotiability is likely greatest here.
- The co-broke: this is the situation in which one agent represents the landlord and another represents the tenant. Mostly, the fee is paid by the tenant and then split between the two agents. In this scenario, the fee itself is least negotiable as both agents are paid half their normal gains (which ends up being less than the one month generally paid by big landlords). Sometimes, owners pays their agents their half of the fee, such that the tenant’s agent has more wiggle room on negotiating their portion, making it less costly for the tenant.
Bottom line: the more concessions the landlord provides, the less wiggle room in the rental price. The best strategy is to set your rental budget NOT based on the fee/no-fee scenario, but the total absolute cost to you. It’s very common to find a fee apartment of similar quality but lower rent, that nets out (after including the fee) to the same rent as a no-fee apartment. PLUS, after the first year, you are paying that lower rent going forward for as long as you stay, rather than the higher rent with the “built-in” no-fee amount. In theory, the longer you are likely to live in the apartment, the better the deal that fee apartment will have become.
{ 13 comments… read them below or add one }
No fee apartments generally have a higher cost per month in rent which over a 12 month period approximates what the cost of a fee apartment would cost.
As mentioned in the article, look at the full lease period and compare total costs to determine which is the best deal. If you pay a fee up front, but then never move for 10 years, that is “cheaper” than having a higher rent that also goes up by the 3.5% annually.
Just a thought.
Indeed, most people have it set in their mind “I don’t want to pay a fee” … understandably. Nobody wants to pay a fee. The key is to not ignore well priced properties that will net you the same rent in year 1.
Wrong. The “fee system” is an obsolete and outdated institution. Yes, 20 years ago, you might need one to navigate the mountains of information. Today, any fool with internet access can browse available listings, make appointments, compare properties, and even see the price history to be better informed.
True story: Years ago, I had printed up a bunch of listings of apartments I already knew I wanted to see… Spoke to the broker on the phone and he assured me it would not be a problem. We meet in person, he tells me, “Let’s take a look at some others in your price range… Those particular listings are not mine and I can’t show you them.”… WHAT!??? I proceeded to ask him what his purpose was? If anything, he was IMPEDING the process of me finding the right place for me… Best part? He actually said, “Well, you need a broker, otherwise you’d just get the apartment for free?” I LOST IT!!
“Really dude? On a $3000/mo. rental, me coming up with 1st and last month PLUS security deposit comes to over $7,000!!”
These guys add ZERO value… If someone could explain why he would deserve $3,000 (1st months rent) for showing me a place that I already knew I wanted to see, I’d be more than willing to listen? No one has been able to.
In the end, I just walked the neighborhood I was interested in moving to. When I saw a building/street I liked, I was able to call the landlord/leasing company directly and make a deal w/o a broker getting in the way.
I’ve lived in the city now for 8 years and have used a broker 3/4 times looking for an apartment.
I have a couple things to say regarding this “discussion:”
1. Let’s be honest here, if you are spending $3000 on a one bedroom apt, which means you have to make 40x the rent (this is the rule in most cases with apts in Manhattan)…aka $120,000/year, do you really have the time to spend hours on the internet trying to differentiate apts by owner and apts by broker, only to start running around the city holding your breath before you walk into an apt, hoping it meets your criteria? Come on!
2. Brokers have relationships with landlords and especially in this market, they can help you negotiate on price. You have FREE representation. It’s a win win situation.
3. Furthermore, assuming you find a good broker (not someone you track down on craigslist), but someone that’s either been recommended to you or comes up in a google search as specializing in the area you are focused on, they will more often than not do a lot of research beforehand. Brokers have their own databases with ALL the inventory on the market. Any broker who’s been in the biz for more than 6 months will know every building in their designated area. They won’t waste your time showing you stuff that they know from experience is bad, because it doesn’t help anyone.
Souffle – I hear your point. Not everyone has the time to do the diligent homework you do, make the appointments and gain access, just like not everyone has the time to do their taxes. This is why the fee system still lives in NYC – precisely because 76% of the housing market is made up of rentals, meaning tons of inventory; not everyone has the time to sift through it all or understands the paperwork needed, etc. (and not everyone understands which landlords to stay away from, which are more negotiable, etc.)
Further, let me assure you that just because apartments are not an agent’s listings, does NOT mean that they can’t show the apartment — rather that they choose not to (bad, bad form and ethics). Indeed, it sounds like you had a horrible experience … and that you did more work than your agent did.
One type you left out is owners(like me) who are renting their own apartments, you know “by owner/no fee”
With all due respect Ms. Harris, I understand you may not like hearing this as a broker, but the truth is, it’s going the way of the toll-booth collector. Your implication that I am “too-busy in my $120K job to take responsibility for such an important life choice”-argument is flawed.
1) Let’s be honest here… Yes I work a full-time schedule and I was still able to do the “hours on the internet” in the aformentioned post. The technology is now there for anyone with a couple of extra hours spread out over a weekend or two.
2) If a broker is supposed to be paid one month’s rent for their “work,” what is her incentive to fight a landlord to lower my monthly payment? I don’t follow how I have FREE representation when the broker is expecting to be paid for “negotiating.” (By the way, a skill anyone with a working mouth possesses.)
3) How do other “too busy to be bothered, full-time working, $120K+”(your calculation, not mine) people everywhere else in the country rent apartments WITHOUT paying the fee? Am I just busier than them, hence willing to pay the extra fee for convenience?
I don’t understand your 8 years, 75% use-a-broker statistic? I’ve lived here 29 years… Does that make me more qualified? Of course not… The fact that 3 out of the last 4 apartments you’ve rented were found with a broker really has nothing to do with 2010 and the technology available to anyone who takes the small amount of time to look for it.
3)
You’re absolutely right, Michael. What I would have written for your category is that the likely places to find listings like yours in the NYT or on Craigslist. Is there any other venue you are using to market your property?
The reason your category slipped my mind is because the post was targeted to add some transparency to the often convoluted conversations had between would-be-tenants and agents. For-rent-by-owner listings don’t quite make it in that conversation.
In fairness… I DO see the value a broker would add when purchasing a home. In these instances, the experience and expertise would provide some value for this longer-term investment. My problem is really just with rental brokers, and the parasitic nature of the beast.
Souffle sounds like those trolls on Yelp that are all anal retentive and need to do things all on their own. a C-client FTW!
Uch, I know… Like doing stuff for myself, like totallllllly sucks, and stuff. Gimme handouts!
What this article fails to mention is “NO FEE, BY OWNER” apartments, where owners and management companies rent out their own apartments.
Another thing for renters to keep in mind, is not only how nice the apartment looks, but who is the landlord you are going to be dealing with for the next 1-10 years…. Many brokers do not even pay any attention to this very important aspect. After all, they will have long been paid by the time the renter realizes that their building is mismanaged….
Yes, we didn’t mention it because there’s really no confusion there in terms of how the fees work (i.e. there truly are none) – the post was intended for tenants working with agents and making sense of the different arrangements. Point well made, nonetheless.