Broker’s Fees In NYC: Can I Get A Straight Answer From Someone?

If April 1st is the day to tell a tall tale or play a crafty joke on someone you love, than April 2nd should be a day of truth and transparency don’t you think!

So here we go…

On a daily basis, I come into contact with clients who simply accept the notion that it is okay for a real estate professional to dodge the question, “What is your broker’s fee?” If you have ever used a broker in NYC, you have likely gotten this two word response; “It depends.” So, how do you outsmart the broker who dodges the question regarding fee? Ask another question! And then another… and another. “It depends? Depends on what? How many different fee scenarios are there!? Ten? Two? Tell me what they are please!” Spoiler alert, EVERY real estate professional you speak with should be able to explain the fee scenarios. Even better, I am about to explain them to you so you’re armed with the information beforehand.

Unfortunately, many real estate professionals like to withhold information because it gives them power over their clients. Good news – you DON’T have to (and should not) deal with that nonsense. If you speak to a real estate professional who cannot clearly explain the fee scenarios, see it for the red flag that it is and MOVE ON. The truth is that there are three fee scenarios when working with a real estate professional. THREE! That’s it. It isn’t complicated or hard to grasp.

Trust through transparency

Scenario #1: Renting AnOpen Listing”

An “Open Listing” is a listing for which there is no exclusive broker. In an Open Listing, the landlord invites all or some of the brokerage community to bring qualified clients under a Collect Your Own Fee (COF or CYOF) structure. This means the landlord does not get involved with the fee collected by the broker bringing the client. So, if the broker charges 15% of the annual rent (the most common “standard” fee in the industry), they collect 15% from their client. If the firm charges a fee of One Month’s Rent as their standard fee (equal to 8.33% of the annual rent), they collect 8.33% from their client. Open Listings represent the majority of listings on the market.

Structure #2: Renting A “No Fee” Apartment When Using A Broker

When working with a real estate professional, it is possible to get an apartment without paying a broker’s fee. This is called a “No Fee” Listing. Now, this does not mean the real estate professional is working for free (nor should they). “No Fee” when working with a broker means that the landlord is offering the broker a One Month commission as a bonus for bringing you to the building. It is very important that you understand that the “No Fee” market is very small (especially between April and October), but it is a scenario every real estate professional should at least mention to you.

Scenario #3: Renting An Exclusive Listing (a.k.a. “Co-broke”)

Although the majority of listings are Open Listings, exclusives are very common. An exclusive is a listing for which there is an Exclusive (Listing) Agent hired to list and market the apartment (think of a typical sales listing). This is common for co-op and condo sublets, but there are real estate professionals who have Exclusives on an entire building as well. In this case, you are likely going to pay a 15% fee which will be split 50/50 (7.5% / 7.5%) between the Exclusive Agent and the real estate professional representing you (the renter). Now, occasionally you will see a CYOF (Collect Your Own Fee) Co-broke which means the Exclusive Agent is getting paid by the landlord. If that is the case, you pay nothing to the Exclusive Agent and your broker will charge you their “standard” fee, so you are – in essence – back to Scenario #1. The bottom line is that it won’t be more than a 15% fee in a Co-broke scenario.

That is it! Now you understand the fee structures. Does that seem difficult to explain? Not to me. So, the next time you speak to a real estate professional, I recommend you peel back the layers by taking the following steps:

1) Always ask the real estate professional what they charge as a fee!

2) If they answer, “It depends.” and don’t follow with a detailed explanation (it should sound A LOT like my explanation above), MOVE ON! WHY PUT YOURSELF IN THAT POSITION?  THEIR RELUCTANCE TO BE TRANSPARENT SHOULD BE A SIGN OF THINGS TO COME.

3) Ask them if they will be able to tell you the fee structure for each apartment you are seeing before turning the key and opening the door. You should be seeing each apartment knowing the fee structure so you can consider it as a part of your decision.

Cleaning Glass

I will end with this – I believe a competent real estate professional can and should explain the process clearly and thoroughly from the first interaction. I also believe (if you trust your broker) it’s in your best interest to see everything you can – despite the fee structure. As long as you know the fee structure of a given apartment in advance, you can consider the pros and cons when making your decision. Lastly, make sure your real estate professional is not going to give you the “hard sell” by asking them this question directly; “What are your thoughts on pressuring a client to take an apartment?” The real estate professional’s role is to advise you – not to force or trick you – so you can make an informed decision with their guidance.

Happy April 2nd!

_______________________________________________________________________

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.

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2 thoughts on “Broker’s Fees In NYC: Can I Get A Straight Answer From Someone?

  1. Hi Eirik,
    Thanks for the very clear and helpful explanation! I just rented an apartment in NYC and neglected to talk to my broker beforehand about the fees. I ultimately got the apartment and have pieced together the fee situation. Could you kindly confirm my suspicions? I wrote a check worth 1 month rent to a brokerage firm, on top of my broker’s fee (the two being separate agencies). After I backtracked I found my apartment’s listing noted as no-fee. So I think i walked into Scenario 3: a Co-broke CYOF. My apartment was a lease break so I think it was listed as a no-fee apartment using a listing agent. My broker then showed me the apartment and collected her fee.

    By my research, this seems legit. Ultimately, I had a great experience with my broker so I was fine paying the fee but wanted to understand how this scenario worked. thanks!

    Like

    1. Hello,

      Thank you very much for reading my post and I appreciate the kind words and follow up. I am very glad you had a good experience with your broker. I wish I heard more comments like that from readers.

      As for your situation, you are probably right about fitting into scenario 3 if you are sure there was a listing agent (exclusive broker) on the other side of the transaction. Not a management company like Related or TF Cornerstone, but a broker who was the point person for the landlord. If that was the case, you fall into scenario 3. That said, there is something I am a little confused by. If the listing was listed as “No Fee” on a site such as Streeteasy, you are still obligated to pay your own agent (that is where the COF or CYOF comes in – the listing agent is getting paid by the landlord but your agent still has to be compensated) but you certainly should NOT have been asked to give the listing agent ANY compensation. That is the entire point of them listing it as No Fee. I don’t know if there was confusion about what monies were going to the landlord rep (maybe it was for rent or security, or represented a good faith deposit which later was applied to rent or security) but you should have been ONLY obligated to pay your broker if the listing broker was collecting money from his client (landlord). Can you clear that up for me? Did you pay two one month broker fees to two different brokers?

      I will respond as soon as I hear from you and I appreciate your visit to my site! Keep reading, there is a lot of good content and I am always happy to help!

      Best Wishes,
      Eirik

      Like

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