Two things are true at once: Rental brokerage fees are shockingly high in New York City and a major burden on people who want a new home; and being a New York rental-brokerage agent is an unglamorous and not especially high-paying job. These two facts can be true at the same time because the way we rent apartments in New York is very inefficient, and renting an apartment takes many more rental-broker labor hours than it reasonably should. Tenants pay a lot and don’t feel they’re getting a lot of value, and the brokers taking the fees from them aren’t exactly getting rich; it’s not a system that works well for anyone.
As such, I welcome efforts by state regulators (currently tied up in the courts) to prohibit renter-paid broker fees. One likely effect of this change is that landlords will shoulder more of the cost of apartment brokerage, and renters can expect to see that cost built into higher rents. But landlords, who have more control over the rental process than tenants, will also have an increased incentive to make the rental process more efficient. If being on the hook for fees pushes landlords to find ways to cut the true economic cost of leasing a new apartment, that will lead to a real savings in the economy, not a mere cost shift.
What do apartment-brokerage agents do all day? A lot of tenants grumble about brokerage work as “I paid a guy $4,000 to unlock a door”; that’s a bit unfair, as they do a lot of showings that don’t lead to a lease signing, and they (sometimes) provide useful guidance about what apartments to look at. In New York, where tenant protections are strong and it can take months to evict a nonpaying tenant, brokers also play an important role in guiding prospective tenants through the qualification process, as landlords will want an unusual wealth of evidence that the tenant is likely to pay rent as agreed.
But apartment-rental brokers, like for-sale brokers, also spend a huge fraction of their time not doing business but looking for business. It’s apartment brokers who are posting zillions of nearly identical, sometimes-misleading Craigslist ads for non-exclusively listed apartments. This is annoying for you, as you comb through and try to figure out which apartments you want to see, but it’s also annoying for them, spending so much time competing with their peers in a search for clients who might eventually generate fees for them.
In most other cities, if there is a broker involved in an apartment-rental transaction, the norm is that the landlord will pay his or her fee. This isn’t just tenant-friendly because it reduces the upfront cost to move into a new home. Because landlords essentially buy brokerage services in bulk, they have more power than tenants to demand low fees. According to The Real Deal, typical apartment-brokerage fees in Chicago, where landlords pay fees, are just one-half to one month’s rent, not close to two, as they are in NYC — and because rents themselves are much lower in Chicago, that’s a huge discount. Landlords also have a carrot to offer brokers in exchange for lower fees: repeat business, which reduces the amount of legwork the brokers have to do to find deals.
Of course, you might ask: If renter-paid broker fees lead to so much unnecessary waste, why don’t they go away on their own under market pressure? But there is market pushback against renter-paid fees. The New York Times reports that over half of the listings on StreetEasy, a leading New York apartment-listing site, already do not entail a tenant-paid broker fee. (StreetEasy, unlike some other sites, includes only exclusive listings where the landlord works with a single broker or conducts leasing in-house.) I didn’t work with a broker when I rented my current apartment; I walked around the neighborhoods I was interested in, looked up availability on building websites, called leasing offices to make my own appointments, avoided paying any brokerage fee and even got a month of free rent.
An enormous corporate landlord like mine is well-positioned to shoulder the cost of leasing and build it into rent like any other expense. I will acknowledge that there are reasons that this practice has not fully flowed to smaller buildings, whose owners may be more concerned about the volatility of rental income and not want to pay leasing costs at the same time they are losing rent due to vacancy. And while technology should have significantly lowered the cost for tenants and landlords to find each other — StreetEasy, for example, is a huge improvement over Craigslist, which was in turn a major improvement over print classified ads — smaller operators will not necessarily have adopted all the best practices that allow them to lease with less friction and rely less on brokerage labor.
As with toilets, this is an example of where regulation might be the kick in the pants the private sector needs to innovate and improve.
It is also possible that recent rent-law reforms will reduce the need for brokerage fees paid by anyone. Last year’s rent legislation aimed, among other goals, to stop owners of rent-stabilized buildings from returning vacant apartments to market rents upon vacancy. If landlords can no longer rent apartments to the highest bidder and are locked into below-market pricing, they may start finding it easy to get new tenants simply by word of mouth. There are downsides to this effect — in particular, it may become harder for new arrivals in New York City to find affordable apartments — but it should reduce one category of demand for rental-brokerage services.
The overall effect of a ban on renter-paid broker fees would be uncertain, and I understand the frustration of people who work in the industry and would find their business upended. But the current system has not worked well, and it imposes a cost on tenants not seen in other cities whose rental markets work better than ours in a variety of ways. New York is expensive enough, and it’s time to try something new that doesn’t force people already under the financial strain of a move to come up with thousands of extra dollars for a service of questionable value.
