Broker fees are the biggest scam. I’m surprised that StreetEasy or another player like compass hasn’t been able to disrupt on this more. As a renter you basically do all the work to find an apartment and then shell out thousands to a broker who… lets you into the apartment for 5 minutes to see it
- there's more demand for good apartments than supply in NYC
- multifamily building owners outsource the process to brokers
- building owners can pay brokers less if brokers pass on overhead costs to renters
- brokers don't have leverage with building owners because the apartments sell themselves
- renters put up with this because there's more demand than supply
If you were here during the pandemic, when there was less demand than supply, you would have experienced a time when all those brokers' fees magically disappeared... and brokers were working harder than ever!
The term "Chesterton's fence" implies there's a good chance that something will break in an unwanted way if you remove the brokers fees. I'm curious what would break for the other parties in the transaction.
"building owners can pay brokers less if brokers pass on overhead costs to renters" could just as easily be "owners could charge $10,000/year more in rent if brokers didn't capture it".
I don't see how this broker system isn't literally rent-seeking. It seems like a totally useless middle-man scraping some cheddar off the transaction for no real value added.
Lucky you only had to pay the broker and not the building too.
Obligatory:
“The door refused to open. It said, “Five cents, please.”
He searched his pockets. No more coins; nothing. “I’ll pay you tomorrow,” he told the door. Again he tried the knob. Again it remained locked tight. “What I pay you,” he informed it, “is in the nature of a gratuity; I don’t have to pay you.”
“I think otherwise,” the door said. “Look in the purchase contract you signed when you bought this conapt.”
In his desk drawer he found the contract; since signing it he had found it necessary to refer to the document many times. Sure enough; payment to his door for opening and shutting constituted a mandatory fee. Not a tip.
“You discover I’m right,” the door said. It sounded smug.
From the drawer beside the sink Joe Chip got a stainless steel knife; with it he began systematically to unscrew the bolt assembly of his apt’s money-gulping door.
“I’ll sue you,” the door said as the first screw fell out.
Joe Chip said, “I’ve never been sued by a door. But I guess I can live through it.”
> Broker fees typically range from one month’s rent to 15% of the annual rent, but can be higher when there is more competition among renters.
From the perspective of a long-time renter in Australia: wild. Here, in our highly imperfect private rental market, we have regulation that prevents these kinds of fees being pushed onto the renter. If the agent managing the property on behalf of the landlord wants a big fee they'd need to negotiate that with the landlord, who is going to have a lot of choice to give the job to other property managers with more competitive fees.
I sort of suspect that the broker may be paying kickbacks to the landlord in these cases.
Many building in New York are rent-controlled such that the allowed rent is far below market. Everyone wants one, but there are not enough for everyone to have one. And there will never be enough by definition because the rent is below market. So the market steps in to correct this imbalance.
Tenants are willing and able to pay a (large!) one-time fee to access those below-market rents… like buying an annuity. Landlords on the other hand are only too willing to accept an upfront cash payment which offsets part of the below-market rent (and could be used to buy an actual annuity to supplement rent).
In this case I believe the broker is simply playing the boogieman (like how Ticketmaster “resells” tickets far above the face value to launder high prices for musicians) to give the landlord and tenant both plausible deniability about what is actually going on.
Brokers also provide plausible deniability to the landlord for claims of discrimination, or whatever types of screening the landlord wants but legally can’t.
But nearly every apartment has a broker fee, not just rent-controlled units. Plus, my understanding is that a rent-controlled apartment is pretty rare to actually come to the market, lots of landlords are refurbishing them and removing the rent control.
It's also unreal to me living in the midwest US. I've rented several spaces, and never once would have considered paying one (nor was I ever asked to).
This is purely a problem of:
A) Too many people want a limited supply
B) The government has regulations which prevent expansion of said supply
C) The government does not prohibit what amounts to... gouging? collusion? utterly pointless middlemen?
Sure, most people have to deal with agents when buying or selling property around here (though I bought my current house from someone who didn't have a seller's agent) but I don't know of anywhere nearby where you'd think to get an agent to rent a place to live.
Is there regulation on how the property manager gets paid? I’m getting my 10% either way, if it comes from you directly in a lump payment, great! If it comes from you over the course of 12 months in marked up rent, still great! I sit around and occasionally call a plumber collecting 10%!
I’ve had a small-peanuts side-gig as a property manager for my in-laws LLC, and that’s the standard practice in the US. If they eliminate brokers they’ll just rebrand as a property manager and get paid differently.
Sounds like there is an opportunity for disruption there.
Australian model is much better because it forces the brokerage fees to a minimum because the landlord is wedged between the renters wanting a cheaper property and their desire for more income.
It's the same in Tokyo. First two months rent, key fee, thank you money, commission, deposit. Some places also have other random fees. As Tokyo was rapidly growing, historically these existed to keep poor people in the country side from living in the city. Now they are just normal and everyone unfortunately just accepts them.
I just did this. It was 11k, what an absolute racket. The broker was useless and it felt so awful to pay him thousands of dollars for a few minutes of his time.
You’ve reminded me of the HOA “Welcome to the Neighborhood” Fee, I think more typically called an “initiation fee.” Typically around 0.5% to 1.5%
Apparently agents typically recommend the seller wrap it up into their side to make the deal more smooth and appealing to the buyer such that we never noticed when we bought into a neighborhood. Of course you can imagine the feeling of paying a do nothing management firm you despise many thousands for the privilege of getting the hell out!
In Germany, it used to the case that renters would be forced to pay the broker fee. At this point, it was typically three month's rent. But the government created a law Bestellerprinzip (Orderer principle) that made it a requirement that the person who initiated the contract with the broker (nearly always the landlord) must also pay the fee.
The fee magically dropped to one month's rent and less since that point; now that the less desperate party had to foot the bill, they were unwilling to tolerate the high prices.
The global economy has become a massive scheme which incorporates the worst elements of capitalism and communism.
Everything is done in the name of 'maintaining stability.' New York real estate owners (and those of other big cities) don't want to allow remote work because it would tank their property values and rents... So they conspire with the media and government to craft false narratives to bring people back to the office... The costs of renting there are so high however, that they have to artificially inflate salaries of people who live there in order to make it add up... But then with such high salaries, this increases company operating expenses and this makes them vulnerable to foreign competitors who don't have to pay their employees such high salaries, so they need to lobby the government to come up with regulations to block foreign competition and they need the government to keep printing tons of money (pumping it into big cities) to keep the scheme going. They also need to reach secret deals with foreign states to agree not to compete in certain industries... Again, all in the name of 'global economic stability.' The amount of wasted human potential is unfathomable.
Most of the population's mental capacity is focused on keeping this artificial centralization scheme going which harms almost everyone and destroys economic value... But they have a solution for that too in the form of 'Global warming' narratives 'worst than we thought'... Even if you can see through it all, the controlled demolition of the economy is fine because 'Everyone needs to make sacrifices to reduce CO2 output'.
The scheme is so complex and intricate... So many bureaucrats working on it... Reality has become some kind of fiction. Every white-collar worker is contributing to the fiction in some way but almost none of them realizes it because their own manipulations represent a tiny piece of the whole scheme. A scheme which involves millions of individuals concurrently crafting and maintaining a massive illusion. Engaging in monetary manipulations, regulations, cultural manipulations (e.g. DEI, ESG) and of course algorithm-based media filter bubbles to ensure that people are kept in the dark as much as possible...
Yes, but the scheme cannot scale very well. Already, many people can see the flaws and they're becoming increasingly obvious. New people cannot be brainwashed fast enough and the costs of the bureaucracy are bringing us to the brink of global hyperinflation.
As a tech guy, it's painful to watch (and especially participate in this) because I can see how technology creates efficiencies which allow the inefficient scheme to keep going longer.
It's like putting a jetpack and roller skates on a horse... At what point do we admit that the horse has become the problem?
Another insidious element of these broker's fees are "good faith deposits." In my case, this was the full brokers fee paid via zelle,lease unseen, and with no contract in place other than an email stating that I would not be refunded the money unless my application was rejected.
I gambled and got away with it relatively unscathed. There's no way though that an exorbitant good faith deposit should be legal.
Readit News
- there's more demand for good apartments than supply in NYC
- multifamily building owners outsource the process to brokers
- building owners can pay brokers less if brokers pass on overhead costs to renters
- brokers don't have leverage with building owners because the apartments sell themselves
- renters put up with this because there's more demand than supply
If you were here during the pandemic, when there was less demand than supply, you would have experienced a time when all those brokers' fees magically disappeared... and brokers were working harder than ever!
"building owners can pay brokers less if brokers pass on overhead costs to renters" could just as easily be "owners could charge $10,000/year more in rent if brokers didn't capture it".
Many cities have this same fence - but only Boston and NYC have a culture of broker fees.
Obligatory:
-- Philip K. Dick, UbikFrom the perspective of a long-time renter in Australia: wild. Here, in our highly imperfect private rental market, we have regulation that prevents these kinds of fees being pushed onto the renter. If the agent managing the property on behalf of the landlord wants a big fee they'd need to negotiate that with the landlord, who is going to have a lot of choice to give the job to other property managers with more competitive fees.
Many building in New York are rent-controlled such that the allowed rent is far below market. Everyone wants one, but there are not enough for everyone to have one. And there will never be enough by definition because the rent is below market. So the market steps in to correct this imbalance.
Tenants are willing and able to pay a (large!) one-time fee to access those below-market rents… like buying an annuity. Landlords on the other hand are only too willing to accept an upfront cash payment which offsets part of the below-market rent (and could be used to buy an actual annuity to supplement rent).
In this case I believe the broker is simply playing the boogieman (like how Ticketmaster “resells” tickets far above the face value to launder high prices for musicians) to give the landlord and tenant both plausible deniability about what is actually going on.
This is purely a problem of:
A) Too many people want a limited supply
B) The government has regulations which prevent expansion of said supply
C) The government does not prohibit what amounts to... gouging? collusion? utterly pointless middlemen?
Sure, most people have to deal with agents when buying or selling property around here (though I bought my current house from someone who didn't have a seller's agent) but I don't know of anywhere nearby where you'd think to get an agent to rent a place to live.
I’ve had a small-peanuts side-gig as a property manager for my in-laws LLC, and that’s the standard practice in the US. If they eliminate brokers they’ll just rebrand as a property manager and get paid differently.
Australian model is much better because it forces the brokerage fees to a minimum because the landlord is wedged between the renters wanting a cheaper property and their desire for more income.
At least one state has banned 'no fault evictions', though there are workarounds.
Our rental market is very tight at the moment, many people have been priced out in regional areas since work from home provisions due to the pandemic.
Apparently agents typically recommend the seller wrap it up into their side to make the deal more smooth and appealing to the buyer such that we never noticed when we bought into a neighborhood. Of course you can imagine the feeling of paying a do nothing management firm you despise many thousands for the privilege of getting the hell out!
They are doing crazy amounts of business now but I’m curious others that have tried it like it or not.
It seems like this broker market is and has been a giant literal rent seeking parasite that needs to go away.
The fee magically dropped to one month's rent and less since that point; now that the less desperate party had to foot the bill, they were unwilling to tolerate the high prices.
NYC needs the same legislation.
Everything is done in the name of 'maintaining stability.' New York real estate owners (and those of other big cities) don't want to allow remote work because it would tank their property values and rents... So they conspire with the media and government to craft false narratives to bring people back to the office... The costs of renting there are so high however, that they have to artificially inflate salaries of people who live there in order to make it add up... But then with such high salaries, this increases company operating expenses and this makes them vulnerable to foreign competitors who don't have to pay their employees such high salaries, so they need to lobby the government to come up with regulations to block foreign competition and they need the government to keep printing tons of money (pumping it into big cities) to keep the scheme going. They also need to reach secret deals with foreign states to agree not to compete in certain industries... Again, all in the name of 'global economic stability.' The amount of wasted human potential is unfathomable.
Most of the population's mental capacity is focused on keeping this artificial centralization scheme going which harms almost everyone and destroys economic value... But they have a solution for that too in the form of 'Global warming' narratives 'worst than we thought'... Even if you can see through it all, the controlled demolition of the economy is fine because 'Everyone needs to make sacrifices to reduce CO2 output'.
The scheme is so complex and intricate... So many bureaucrats working on it... Reality has become some kind of fiction. Every white-collar worker is contributing to the fiction in some way but almost none of them realizes it because their own manipulations represent a tiny piece of the whole scheme. A scheme which involves millions of individuals concurrently crafting and maintaining a massive illusion. Engaging in monetary manipulations, regulations, cultural manipulations (e.g. DEI, ESG) and of course algorithm-based media filter bubbles to ensure that people are kept in the dark as much as possible...
As a tech guy, it's painful to watch (and especially participate in this) because I can see how technology creates efficiencies which allow the inefficient scheme to keep going longer.
It's like putting a jetpack and roller skates on a horse... At what point do we admit that the horse has become the problem?
I gambled and got away with it relatively unscathed. There's no way though that an exorbitant good faith deposit should be legal.