Breaking Down Broker Fees
My phone rings, and it's a friend I haven't heard from in months. "Hey, Josh, long time no talk! How have you been?" I ask.
"I'm great, Luke. Hey, I have a question for you. I saw an apartment today, and the agent is trying to charge me 15%. Can you help me out?"
I get this call multiple times a month. Unfortunately for Josh, it’s already too late.
If you're planning to rent an apartment in New York City, you'll want to understand how broker's fees work. Broker's fees can be a significant cost when renting, so it's important to know what you're paying for and how much you should expect to pay. In this blog post, we'll explain everything you need to know about broker's fees for renting an apartment in New York City.
What are broker's fees?
Broker's fees are the fees charged by a real estate agent or broker for their services in helping you rent an apartment, whether they are representing the landlord or the renter. These fees are typically paid by the renter, and they can vary depending on the broker and the apartment you're renting. Broker's fees are usually a percentage of the annual rent, that can range from 8% to 15%, sometimes a “one month fee” which equals about 8.33%. Broker fees are different than application fees. When applying for an apartment, NYC law states that Application Fees to process your application and run a credit check can not exceed $20 per applicant.
How do broker's fees work?
There are 5 main scenarios you’ll encounter when renting in NYC.
Scenario 1: The landlord chooses an agent to represent and rent an apartment. This agent is called the “Listing Agent”. The landlord decides to pay the listing agent the broker fee for their services. This is a “No Fee Apartment”. You see the apartment online, tour the apartment on your own, and rent the apartment. In this scenario you do not pay a broker fee.
Scenario 2: The landlord decides NOT to pay the listing agents broker fee. This is a “Fee Apartment”. You see the apartment online, tour the apartment on your own and rent the apartment. You will be required to pay between 8% - 15% of the annual rent.
Scenario 3: You agree to work with an agent to help you find an apartment. The agent representing you is a “Renters Agent”. Perhaps you are new to NYC, unfamiliar with the neighborhoods and the renting process in NYC. Your Renters Agent tells you about an apartment and you go see it together. The landlord is paying the listing agents broker fee (No Fee Apartment). The landlord is ONLY paying the Listing Agents fee. You will be required to pay a broker fee to your Renters Agent. This fee varies and can be negotiated.
Scenario 4: You agree to work with an agent to help you find an apartment. Your Renters Agent tells you about an apartment and you go see it together. The landlord is NOT paying the Listing Agents broker fee (Fee Apartment). You will be required to pay a brokers fee that is split between both the Listing Agent and your Renters Agent. The agents, if they are members of the Real Estate Board of New York, are required to “co-broke” a 15% fee, 7.5% to the Listing Agent and 7.5% to your Renters Agent. Negotiability is rare on the listings agents side but sometimes you can negotiate with your Renters Agent.
Scenario 5: You agree to work with an agent to help you find an apartment. Your Renters Agent tells you about an apartment and you go see it together. The landlord is paying the Listing Agent AND the Renters Agents broker fees (No Fee Apartment with Owner Paid(OP)). This is a win-win scenario for all parties (expect the landlord). We typically see this situation in poor rental markets or when landlords have a lot of inventory needed to be rented quickly in neighborhoods will less demand.
Are broker's fees negotiable?
Broker's fees are negotiable, but it's important to understand that brokers are not required to lower their fees. If you're working with a reputable broker, they'll be upfront about their fees and won't try to hide any costs from you. If you're unsure about a broker's fees, you can always ask if they're negotiable. In strong rental markets you’ll see less negotiability.
Co-ops And Condos
The above scenarios apply to rental buildings, where you have one landlord who owns the entire building. You may come across a rental listing offered in a Condo or Co-op. These property types, even if listed as “No Fee” may have high management and application fees.
Benefits of Working With a Renters Agent
OFF MARKET PROPERTIES are the best reason to consult an agent before starting your search. Now at 8 years in New York City real estate I know many landlords and management companies who send me lists of apartments both on and off market. I have the ability to rent apartments directly from the landlord instead of going through a Listing Agent.
Agents can also help you navigate confusing lease agreements, position your application properly if there are multiple offers on a property, and help you avoid scams that have become more prevalent in NYC.
Broker's fees can be a significant cost when renting an apartment in New York City, but they're a necessary expense if you want the help of a real estate broker. By understanding how broker's fees work and what you should expect to pay, you can make an informed decision about whether to work with a broker and how much you're willing to spend on their services.