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.
Scenario #1: Renting An “Open 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.
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.