I have been a resident of Queens for the past 13 years and a co-op owner in Jackson Heights for the last 6. It’s a wonderfully diverse, vibrant community, and I love being a part of it! Unfortunately, most homebuyers will never know this, due to the business practices of many real estate brokers in Queens. A lack of transparency is suppressing the value of our properties and delaying neighborhood development and infrastructure. It is high time we address this.
The real estate market in NYC has recovered, and has been very active for the past couple of years. Rents are at an all-time high, while interest rates and inventory are at all-time lows. As a result, Manhattan and Brooklyn have seen significant increases in price/sq ft, a large uptick in number of sales, decreases in time on the market (properties are selling faster) and a positive change in neighborhood infrastructure such as gyms, bars & restaurants, grocery stores and specialty stores. Clearly, this is great for those who own in Manhattan and Brooklyn. It should also be great for Queens!
When prices rise, prospective purchasers at the lower end of the market are priced out of certain areas and begin to explore new frontiers. Similarly, as rents rise in Brooklyn and Manhattan, renters look to find more affordable apartments or decide to purchase. This is the “ripple effect” and it’s occurring right now in both the rental and sales market in NYC. However, in neighborhoods like Jackson Heights, the ripple isn’t having an effect.
Why? It is not because of the lack of “desirability” of our neighborhood. I have seen “undesirable” areas like Crown Heights go from block upon block of chop shops and empty lots, to new condos, bars, boutique stores and restaurants in a matter of months. I believe it’s for one major reason, the real estate brokerage community. The way listings are handled in Jackson Heights will continue to depress the value of our properties unless we understand the process and why many brokers are doing an absolute disservice to the owners they are supposed to be representing.
The easiest way to expose the flaw in the current system is to provide a hypothetical example:
I am an owner and want to sell my home. I can either list the apartment on my own or hire a real estate broker to list it on my behalf. If I choose to list on my own, I need to make sure I understand the market, advertising portals, building policies, mortgage process and negotiation techniques. So, let’s assume that I see the value in a real estate professional and choose to hire one who I like and trust (if you don’t, find one you do!). The standard brokerage commission for a sales listing is 6% of the sales price. My initial questions are, “Why should I pay 6% to a listing broker?” and “Would a broker settle for a lower fee of 2-3% if I try to negotiate that?” These are understandable questions, so let’s address them.
Why should I pay 6% to a listing broker? The intention behind a 6% fee to a listing broker is that they will invite and encourage any and all other brokers to bring clients to my apartment and “co-broke” the deal. In a “co-broke”, the total commission paid by the seller will be split between the listing broker and the broker who brings the buyer (3% / 3%). Since most buyers are represented by a broker (far fewer try to purchase on their own), the commission to the buyer’s broker is essential to attracting represented buyers. Further, represented buyers are often more serious, more prepared and better qualified. Now, if my broker is misrepresenting me by avoiding co-brokers, or focusing their efforts on a “direct deal” with an unrepresented buyer in order to collect the full 6% commission, I have a poor, dishonest and unethical broker. Then, it’s time to make a change or, at the very least, keep them honest by finding out how and where they are advertising and marketing my apartment.
Would a broker settle for a lower fee of 2-3% if I try to negotiate that?” The answer is probably yes. If you tell a listing broker you are only willing to pay them 2-3% total rather than the standard 6% listing fee, some will take you up on that. After all, brokers want listings for many reasons; it is guaranteed income (unless they are fired), exposure AND they can generate business by attracting unrepresented buyers who they can then “turn around” and represent as a buyer’s broker. The real question in my example is, “Why would it be beneficial to me as the seller?”
Well, the clear “benefit” is that you save 3-4% on the total commission you pay the broker…a no-brainer, right? Wrong (unfortunately). By negotiating a 2-3% total commission, I am ensuring that the listing broker can (and will) only show my property to unrepresented or direct purchasers – a small fraction of the potential buyers out there. In fact, in order to avoid having other brokers call to inquire about the property, my listing agent will likely avoid advertising on popular sites such as Streeteasy. But, Streeteasy drives direct clients as well, so it is imperative my property is listed there. In an effort to save 2-3%, I will likely end up with lower purchase price, longer time on the market, a more difficult deal, unqualified buyers and frustration with my broker (whose hands are tied!). I would actually be better off listing the apartment myself (no listing broker) and offering to pay a buyer’s broker 2-3% to bring a buyer to me.
Many real estate professionals based in Queens refuse to co-broke their sales listings. Whether they are attempting to collect the full 6% commission or taking 2-3% from a seller, it has a hugely negative effect on the neighborhood and the seller they are representing. Potential buyers see the real estate market in Jackson Heights as difficult, uninviting and not worth the effort. Less traffic means fewer offers. Fewer offers leads to lower bids. Lower bids ends in lower prices.
The good news is; we have the power to correct this by implementing the following:
- Choose a real estate broker who is knowledgeable and trustworthy. Doing a lot of business in the neighborhood is valid, but it is not a reason to choose a broker. You MUST trust them and feel they are going to give your property the attention it deserves.
- Pay the full commission. It is fine to negotiate the total commission with your broker, but DO NOT pay them a commission which forces them to attract only direct clients. You want your broker to co-broke!
- Monitor your listing! You should be proactively asking your listing agent how the showings are going, when and how often they are hosting open houses and where they are advertising.
- Look at the ads! Your listing broker should be thrilled to show you their advertisements, giving you comfort that your home is being marketed as well as possible. The photos should be professional and should highlight the attributes of the home. The copy should describe your home and entice potential buyers. The ad is a reflection of how much time and effort your agent is spending on your listing.
Until we begin to properly vet the real estate professionals in our neighborhoods and demand that brokers in Queens properly represent us (this is not just a Jackson Heights problem – we see this in Astoria, Sunnyside, Woodside, Elmhurst, etc.), other neighborhoods will continue to pass us by. Our investment will suffer, and our neighborhood will suffer along with it. How long do you want to wait?
My name is Eirik Davey-Gislason and I work in real estate in New York City. This blog is an opportunity for me to educate everyone who has a horror story or is on the verge of one. By sharing, preparing and advising my audience on what to expect, what is normal, what is right, and what is wrong, I hope to do my part to expose the wrong-doers and shape the future of this dysfunctional thing we call NYC Real Estate.