In a city where the average rent for a one-bedroom apartment hovers around $3,000, simply finding a place to lay your head at night in NYC can cost you a pretty penny.
Once you factor in a broker’s fee of up to 18 percent plus the first month’s rent and security deposit on a $3,000 apartment, a prospective tenant is looking at an upfront cost of $12,480. Ouch!
What is No Fee?
Competition is tough between landlords and many apartments are now being listed as “No Fee”, which means there is no broker’s fee.
Of course, the brokers will get paid. They are not traipsing around the city in all weathers just for the fun of it. A “No Fee” apartment simply means that the landlord is willing to pay a broker for their time rather than put the cost on the tenant.
“Most of our listings are “No Fee,” says Sully Klein, Principle Broker at Real Street Real Estate Group, based out of Bedford Stuyvesant in Brooklyn. “They are mainly new construction apartments or recently redeveloped buildings owned by landlords with large portfolios. The smaller landlords and those in older buildings often aren’t willing to pay our fee but then their rents are less.”
Tariq Hakeem, a veteran broker at Corcoran takes the “No Fee” logic one step further.
“Most of these larger developers are willing to list “No Fee” apartments because it’s built into their costs,” he says. “They receive tax breaks for these new constructions and can charge higher rents for buildings with greater amenities and luxury finishes. Also, people generally don’t move apartments each year, so paying the broker’s fee is easily recouped.”
Hakeem brings up another interesting point — refinancing. “When an owner can show their apartment building is fully rented it makes refinancing easier. Also, in some cases, a developer gets tax credits when a building is fully occupied, so it behooves them to get it filled as fast as possible.”
For renters looking for apartments, the lure is clearly not to pay an upfront fee. Many refuse, on principle, to put their hard-earned cash into a broker’s pocket. But in doing so they may be setting themselves up for higher rents in the long run.
Advertising Fees Increasing
“StreetEasy has been the only game in town for a while,” says Klein, “and many brokers are getting fed up with their increasing prices. They could stomach $3 per day, and then it went to $4.50 per day per listing but in January it’s going up to $6 per day and it’s forcing many brokers to look at other listing sites. Twenty listings on StreetEasy amounts to $3,600 per month that a broker has to pay.”
Hakeem agrees: “It’s never healthy for there to only be one option. It’s particularly hard on the smaller brokerages where the margins are less.”
Costs Passed On To Tenant
What is clear is that rentals are moving in the direction of No Fee and brokers are increasingly getting paid by landlords rather than tenants. As StreetEasy raises advertising fees, brokers will want to make up the shortfall somewhere. That inevitably means asking landlords for greater cuts… and, you guessed it, landlords looking to make up the cash will charge higher rents.
Disclosure: Marketproof powers the real estate listings for Brownstoner, a publication of Schneps Media, which is the parent company of amNewYork.