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'd summarize Chesterton's Fence as "do not destroy that which you do not understand." Human things that have been around a while almost always have some sort of purpose. That purpose could be something noble and important, or it could be some sort of kickback scheme. Figure out which one it is before you lead a protest against it.
Ya that's a silly explanation, the only relevant point is this:
The price charged by brokers to landlords is less than the perceived value of the labor required for the landlord to list the property, receive calls from interested renters, and show the property.
This isn't surprising because brokers charge next to nothing to the landlords because they make their money on the fees from renters.
Renters are forced to abide this situation because of the aforementioned mismatch in supply and demand.
Why does this market crop up in some cities but not others? It's hard to say, some claim it's rent control but buildings without rent control still have exorbitant broker's fees in NYC. However, this is hardly the only market niche that is cultural rather than dictated purely by market forces. Americans don't buy bidets, the Japanese still frequently prefer cash transactions to electronic payment, and San Franciscans don't charge brokers fees.
> The price charged by brokers to landlords is less than the perceived value of the labor required for the landlord to list the property, receive calls from interested renters, and show the property.
There's no way this costs $10,000 ... the equivalent of 160 hours (a full month) of highly-paid labor. In a housing-constrained city where the landlords product sells itself.
> 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.
No, it's about making changes without knowing enough about what you're changing, and why it is the way it is. If we actually understand the reason for high broker's fees, there is no Chesterton's Fence. It seems like we do know the reason they're so high, and could move to address them with some confidence.
The reason it's going to the brokers is that the landlords are legally prohibited from charging higher rent.
It can't go to the customers for the obvious reason that the whole point of the system is to allocate a smaller number of apartments to a larger number of customers.
Rent stabilized units are a small percentage of the NYC rental market (and change tenants much less frequently than the rest of the market)
Brokers seem to be able to capture the value just because they’re entrenched. Demand has outpaced supply, and landlords are happy to outsource the majority of the tenant search process.
Large apartment buildings with leasing offices capture the value you’re saying can’t be captured. There are tons of comparable “no fee” apartment buildings with a rent that’s 15% higher.
So — do you pay a 15% fee once, up front, and hope you don’t need to move? Or do you pay it on your rent?
Edit: ok the percentage of rent stabilized units in NYC is actually a good bit higher than I thought. But my second assertion still stands — they practically never change over. So it feels like they’re an impossibly small part of the market. You won’t find rent stabilized deals advertised.
>Demand has outpaced supply, and landlords are happy to outsource the majority of the tenant search process.
This is the part I simply cant fathom.
I am a landlord. Why would I ever be willing to fork over 10K to save a trivial amount of work. Do the brokers take on some sort of liability for tenants?
No, the brokers are extracting value from the excess demand. The landlords get what they want: not doing that part of the work, particularly showings as many landlords do not live nearby.
And the landlord, for a city of predominantly 2 yr-ish-long rentals, benefits from nominal rents being as low as possible--a well-priced apartment sells fast, a poorly priced one does not. (Compare to Ticketmaster and music venues.)
Then brokers extract as much as they can. But since a broker only gets the commission a fraction of the time they do the work (say 1/3), the competitive equilibrium for brokers fees is higher (say 3x)than it ought to be, bc the marginal addtl broker who would undercut them simply left the industry instead.
I dont think that helps me understand it at all. That still doesn't explain why landlords give up that value. Why let a 3rd party make 10k off renters when you could pay some maintenance man $20/hr and keep the difference. If lazy and disinterested landlords are the answer, why are landlords less lazy in every other high demand city?
The question of if the marginal broker can or cant live off of 10k per transaction is entirely sperate. my guess is that there is some city regulatory barriers to entry here, but I haven't looked into it.
Yeah, fair, it doesn't add up. The landlord gets a potentially-large boost to marketability by offering a lower nominal rent... But so what? Is it just that that sets a lower competitive equilibrium? Idk.
Although illegal now, San Francisco used to have a widespread practice of "key money"--a bribe you paid the landlord to choose you to rent the apartment that due to rent control or other factor was priced below market demand.
Because the landlord was capturing the extra value directly, a cultural practice of high broker fees never developed there, while it did in the east, where bribes were less common. Thus someone other than the landlord captured the excess value.
It's also entirely possible that the broker's fee is being illegally passed as "key money" to the landlord in a way that's harder to detect/litigate in NYC because it's not direct from the tenant.
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.”
In the past 1-2 decades we've seen so many things get hyper-monetized which used to be free - playing sports at the park, restrooms, cups of water with a meal, shopping carts that need a quarter to unlock. Ubik was written in 1969; I wonder what trends Philip K. Dick was exposed to between 1945-1969 which led to him imagining a dystopian world not too far beyond where we are today.
> 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.
my understanding is that NYC rent stabilized units also have restrictions for vacant units too.
>Any time a tenant vacated, landlords received a “vacancy bonus” that let them increase the rent of the unit by up to 20%, and once an apartment’s rent reached a certain dollar amount — most recently, $2,774 a month — the unit left the rent-regulation system entirely, allowing the landlord to rent it at any price.The Housing Stability and Tenant Protection Act of 2019 (HSTPA) repealed both vacancy bonuses and vacancy decontrol. It also sharply limited how much landlords could pass along the costs of renovations to tenants through rent increases, practices that housing advocates and lawmakers criticized for spiking rents and fueling displacement.
Prior to 2019, landlords could make a lot of money by emptying out rent-stabilized apartments. HSTPA essentially revoked any financial incentive to do so.
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.
Where broker’s fees are concerned, up-front cost is typically first and last month’s rent, plus the broker’s fee, which can be as low as one month’s rent or as high as 15% of the annual rent total (almost twice the cost of a single month’s rent).
Apply the rules above to whatever the average rent is for a given neighborhood, and there you go.
vague tangent: there was progress in late 2023 re: reducing US housing transaction costs, with a jury finding in favor of a big class action lawsuit about the non-competitive way buyers & sellers agent fees are structured (much higher than in other countries). So that's arguably one step forward & signs of progress, although it doesn't help anyone renting in NY.
Because JC has always played second fiddle to other boroughs of NYC despite being physically closer to downtown Manhattan than the other boroughs. Even today it's cooler to live in Brooklyn and commute into Manhattan then to live in JC and take the PATH in.
Jersey City is more than welcome to stop being second fiddle by simply making the PATH train at least as functional as MTA trains. A bunch of transit planners tried to help and the Port Authority said, "No thanks." Until that changes, nothing will ever help New Jersey.
It's one of the dumbest things I've ever seen. JC is about 15 minutes into the West Village and only a little more into Greenwich Village and Soho, which arguably constitute the best parts of the city. And on top of paying top dollar to live in Brooklyn, people furthermore get soaked for nearly 4% in NYC city tax. It's amazing how foolish people will be just to play status games.
the path train also sucks ass, it's incredibly slow, only goes as far north as 33rd st, has dogshit headways on weekends, and never runs on time on weekends
If you're coming from a rental you're likely/hopefully getting a lot of relief from not having to pay for the last month's rent, which was paid up front, and getting the security deposit back.
Even those fees are wild. Why do you have to pay last months rent when you move in? Even security deposits are kinda crazy.
One corporate landlord lease I got had to just run a soft credit check and a $100 good-faith security deposit instead of the traditional month of rent. In the age where credit worthiness information is so available, why bother with deposits?
Deposits help because renters often trash places before leaving, especially in renter-friendly states like NY and California that allow renters to squat for months after the move-out date
I had that from a corporate rental, but they got their ounce of blood doctoring and exaggerating the cleaning fees.
- $200 in mandatory carpet cleaning fees, no you can’t use the rental at Wal-Mart you must provide a receipt from a licensed firm. The typical licensed firm is $300 just to show up.
- Forgot a bottle of hand soap under a kitchen sink? Well it’s $50 dollars per trash bag. Oh you forgot a bottle of hand soap in the other bathroom? Well we start a new bag for each room so that’s another $50!
Was there any dispute or exaggeration on our move out sheet? We don’t negotiate with you poors! You have 30 days to pay or we report it against your credit report!
Oh you wanted to litigate that $600 fraudulent fee? Guess how much an attorney is gonna cost ya!
