Fee vs. No Fee Rental Apartments
Intro
Broker’s Fee: What are they, how are fees earned and why are they so high?
Fee vs. No Fee Apartments
Where To Find No Fee Apartments
Intro
When demand for NYC rental apartments is as high as it is now, apartment rents, along with broker’s fees, can get ridiculously high. Anyone who’s ever taken economics knows that high demand drives up prices, and currently in NYC, continually high demand has resulted in both brokers and landlords seeing just how high they can make renters go. When you decide to move forward with an apartment, you will typically have to pay first month’s rent and one month security upfront. Along with broker’s fees, these upfront costs can be a huge issue for many renters. Even with record high prices, though, bidding wars are still common, and oftentimes, brokers will underprice an apartment, just so they can host a super busy open house and drive the prices right back up. It isn’t fun out there for renters right now, especially when they’re going at it alone.
At ApartmentsTogether, we’re here to walk you through the rental process and give you a competitive advantage over other renters without charging you a broker’s fee. We know that in this market, information is crucial to avoid getting taken advantage of and to avoid overpaying. We also know reliable apartment information can be hard to find. We’re here to help! We used to be real estate agents, so we know the ins and outs of the apartment search process. We know about off market listings, tips to skip broker’s fees, and how to get you the apartment you want (even when open houses look the way they do now). How can you avoid broker's fees? And just what are broker’s fees? Here’s everything you need to know.
Broker’s Fee: What are they, how are fees earned and why are they so high?
To understand broker’s fees, it’s helpful to first understand who is involved in a typical real estate transaction. First, there is you, the renter, who is looking for an apartment. Second, there’s the landlord/owner who literally owns the building and is trying to find a tenant. And last by not least is the real estate agents & brokers, who can work with either side, or both, and acts as liaison between the renter and landlord.
Even though the terms are commonly interchanged, real estate agents work for real estate brokers. Brokers own brokerages, employ agents, and can work for either landlords or renters. Understanding who a broker works for is the first step to understanding where their loyalties lay, and who they're trying to get the best deal possible for. What's good for landlords, isn't usually good for renters.
When Fees Are Earned
As mentioned, broker’s work with both renters and landlords, so depending on which, it will affect how a fee is earned. If you, as a renter, are looking for an apartment and decide to hire a broker to show you a ton of different apartments, you will most likely be paying that broker a fee. The broker has earned the fee by introducing you to a number of options, walking you through the process and facilitating the deal. This type of broker’s fee can be whatever you and the broker agree upon beforehand, but is typically between one month and 15% of the yearly rent (~2 months rent).
On the landlord side, brokers can be hired by owners or management companies to rent out their apartment inventory. Sometimes, the broker has an exclusive right to rent the apartment. In this case, a renter has to go through the broker to rent the apartment, and the broker can charge whatever fee they want. Other times, a broker may have an exclusive right to advertise the apartment. This means that while the broker has the right to put up ads online, they do NOT have the exclusive right to rent it. In this case, you could potentially go directly to the landlord and skip the broker’s fee. If you sign up for ApartmentsTogether, we’ll help you understand which is which.
Whether it’s an exclusive or not, if a landlord and broker have an agreement, sometimes the landlord will cover the broker’s fee, which results in a No Fee Listing (sometimes because the listings are harder to rent, landlords will cover the fee to incentivize renters: no one works for free!) Other times, the broker can charge the renters the fee and keep it for themselves. In extremely sought after listings, brokers may compete to get a right to advertise. In this case they may offer the landlord a “kickback” of the broker’s fee, forcing the broker to charge high fees to make their desired amount. Why else are broker’s fees so high?
Why Are Fees So High?
Well for starters, the landlord kickbacks mentioned earlier. Also, high rental demand, like we're seeing in the current market, is what drives up broker’s fees. Basically, brokers can charge what people are willing to pay. When people are desperate, or misinformed, they're willing to pay more. Regardless, brokers fees are typically between one month’s rent and 15% of the yearly rent (and can be negotiable).
In many cases, fees are high and non-negotiable. This is usually because so many parties are involved in the transaction. As mentioned, every real estate agent works for a real estate broker, with whom they have to split any fees they earn. When both sides of the transaction (renters and landlords) are working with brokers, there can end up being a lot of hands in the pot, resulting in 15% broker’s fees being common.
As mentioned earlier, when trying to rent an apartment, information is key. Understanding who is getting paid in a transaction is incredibly important. Just because a broker is trying to charge you a fee, it doesn’t mean you always have to pay it. Get the inside scoop on any listing you find online with ApartmentsTogether!
Fee vs. No Fee Apartments
“I’m only looking at No Fee Apartments” is a phrase many real estate agents hear often, but to this I say, if No Fee options were always a better deal, do you really think Fee options would still exist? No! Both Fee and No Fee options will have their pros and cons, depending on your situation.
Generally speaking:
Fee Apartment: Usually better value long term, but higher upfront cost. The longer you see yourself staying in the apartment (2+ years), the more this upfront cost will be amortized, oftentimes making Fee listings better deals over time..
No Fee Apartments: Lower upfront cost, but typically you get less bang for your buck. For those who are moving into the city for the first time, upfront fees can be a killer. No fees can be better for those looking to avoid paying a ton at once.
As a rule of thumb, if you want to compare Fee and No Fee Apartments, take the broker’s fee amount, and divide it by the lease term to calculate how much it would go for as a “No Fee.”
Ex. Imagine a 12 month lease, on a $3,600/month apartment with a one month broker’s fee. This would be pretty comparable to a $3,900/month. no fee apartment.
I mentioned earlier that no one works for free, so it’s important to consider who is getting paid in the real estate rental transaction. Another thing to consider is why an apartment would be No Fee in the first place? Other than large doorman buildings who have their own leasing office (and therefore do not charge broker’s fees), most No Fee apartments exist simply because the landlord is paying the broker’s fee for you, so you don't have to. Why would a landlord pay a broker, when other landlords are letting brokers charge whatever fee they want and some are even receiving kickbacks? It can depend on a lot of things, but typically it’s because the landlord is having a hard time renting it out otherwise. No fees don’t mean the listing is terrible, but limiting yourself to only No Fee listings will only hurt your search (compare fee and no fee listing prices using the rule of thumb mentioned above). Give us a call to learn more about individual listings!
Where To Find No Fee Apartments
As mentioned earlier, both fee and no fee apartments will have their pros and cons. If your main goal is to avoid high upfront costs, then no fee options are most likely a good move. If you’re looking for move value long term, then paying an upfront fee will end up being less of an issue.
So how can you identify no fee listings? Well, first, limit your search to only no fees! Every major apartment search site (streeteasy.com, renthop.com, etc.) has an option to search exclusively for No Fees. Furthermore, you can take some time to learn more about various doorman options (or have us teach you). These doorman options are typically no fee, and include some super nice amenities. Again, information is power. We can inform you of all of your apartment options, as well as, which management companies, leasing offices, and landlords will let you go direct. Head to www.ApartmentsTogetherNYC.com or give us a call to learn more!
