to fee, or not to fee

Keep in mind that in this building there will be condo application fees and an approval process with paperwork. So $3600, no fee, differs from a rental building because you pay fees, which can be under $500 but can also be over $1000 depending on the finances of the building, and you can't know right away if you are getting it, plus references required. Additionally, the other economic difference is that the rental buildings are giving 2 months free right now.

Now, I wouldn't advise an owner to lower the rent to make up for it, because people are searching within a range, and if renter is in the $3200 range, they might not look for a $2900 rental and consider it equivalent by quality, so truly the best strategy, in my opinion, is of course to pay the brokerage fee, and also to offer a free month, and to guarantee and/or give an option that allows for renting in the second year at the same rate.

"Condo application fees and an approval process."

LOLOLOL.

Condo associations have about as much authority in deciding who gets "approved" to rent your apartment as the doorman does.

For a condo board itself, that's an exaggeration but in the right direction. But you'll have a managing agent to work through, plenty of paperwork including in some circumstances bank statements and references, and the fee is one of their bonuses, and the timing and it will at least have to make it to the board.

My recommendation, by the way, is to make sure that the owner has previewed his intent to rent with the board so that the approval can be speeded, and for the renter to consider negotiating a drop dead date in the lease agreement, e.g. this lease agreement will have no force or effect if the condominium association's right of first refusal is not waived by [date]. And negotiate a date with the owner that does not allow for the full process, it really should be quick as NYCMatt suggests to actually do the approval so don't let people sit on paperwork and have someone else be in control. Make it the condo owner's problem to get it through, quickly, as he's in the best position to do the work in advance and push it through.

Again, I'm not a lawyer, my advice should not be construed as legal advice.

Try to see both and let each one know you have seen or are seeing the other. I'm sure the $3600 will come down and the $3500 can have an arm twisted to cut the fee.

no reason for a renter to pay a fee in this martket. rental market is in free fall

You know, I'm not really sure it is in free fall. Yes, monthlies are down on new leases, yes free rents to new tenants is common - many two months, but still I think that base rents are high in better market buildings. 1 beds in many good places are still over $3K monthly.

But I agree about paying the fee as I said in another thread about what is a low fee.
Quoting myself

The "rack rate" brokerage fee is 15%. In high demand times (i.e. not today) you can still get a fee down to 1 month (8.25%) if there is only one broker (the apartment owners') involved. Rental buildings will pay 1 month fee to rental agents in what to you is a "no fee" listing.

But on good properties today, sensible owners and educated brokers who aren't wasting time are listing them as "no fee" to get the property moving. That means that the owner is paying the fee, usually 1 month. In today's market it is wise for an owner to grease the wheels of getting a rental going. A month unrented is an asset that can never be recovered like an airplane seat that goes empty once the plane takes off.

Some owners are stubborn, they bought a new condo, shelled out lots of dough, and then the idea to them of spending $$ to pay the broker fee upfront, more cash out the door, feels hurtful to them and they might not be rational about it. Now, the broker needs to make some money, so make the broker your friend. Do that by coming up with an equivalent for you paying the fee ... e.g., at that point it's unlikely to be more than 1 month fee anyway, so if you get 1 (better 2) months of upfront rent free, then it works out the same for you, and you have the broker on your side - just be frank with the broker, say, listen, in this market the owner should be paying the fee but I know you have to get paid and I know some owners don't understand the market so let's both work it out so that I get two months free upfront ... because the rental buildings are offering two months free and paying the broker.

On the 15% in the hot market, it's a lot. You might look at your $3K rental and say that the fee is a hefty $5400 that you have to swallow up front. But what that really means is that your $3K / month rental is actually $3450 per month, a pretty big difference, if you are budgeting on a monthly basis.

This market today is for the renter, don't let anyone fool you. But keep in mind that if there's a broker there, and you want that particular apartment, let the broker "work for you", not for the owner especially if you are the one writing the check to the broker. Make the broker your friend and get the broker to negotiate fee down and get you the free months rent, citing the airplane seat example as being especially meaningful. And if the broker isn't cooperating, two days without a return phone call to a broker who makes money by doing rental deals is an ETERNITY.

Lastly, keep in mind that January is a bit tougher on the renter's side than February, March, April.

this sounds good...but i don't think you've ever dealt with a rental broker.

I agree that there is a difference between an all rentals broker and a broker who provides rental services but is mostly a sales broker and is at one of the bigger firms (where you can't really make a career of being a rental broker). Anyway, found the sales broker more interested in maintaining the relationship with the owner and probably more flexible than what I might have found with the rental broker (who I dealt with long ago) who the fee might mean the next meals!

Still, hopefully renters are being more aggressive with their brokers and can use some of my advice and information. An informed renter is in a better position. And like I said, if the broker isn't cooperating, two days without a return phone call to a broker who makes money by doing rental deals is an ETERNITY. And if that doesn't work, then move on, right? More options these days and definitely in this season.

i agree with move on.

as i'm sure you know, negotiating with an idiot is far more difficult than negotiating with someone who gets it. easier to negotiate with a telemarketer than a rental broker.

Oh yes, negotiating with an idiot is difficult. Sometimes if the person negotiating with the idiot, if he is unwilling to walk away, will end up with a worse deal than negotiating with a smart person.

agreed. if you're not willing to walk away, negotiating is pretty tough period.

Paying rental fee is for out of towners only in this day and age.

Agree

Interestingly, I see that 21K and 22K are for rent, and in the past week 23K is on the market for $1,150,000 and monthly charges of $626 plus $950 taxes. I guess if we assume (and I realize this may not be the case) that 21, 22, 23 are all in roughly the same condition and the view doesn't change materially, the owner is getting $3500 rent - $626 - $950= $1924 per month, not factoring that the real estate taxes are deductible. So, how about we go with $25,000 per year rent after costs. And how about that 23 is slightly nicer and won't actually go for the asking price. Call it $1 million even for 21 or 22, so we are talking 40x! Wow.

Add in insurance, amortize transaction costs over 10 years, and budget a little for upkeep, and you'll find yourself at a 2% net yield even after tax deductions.

Hmm: 2% yield on a risky asset whose yield should grow at around 2-3% a year vs. 3.7% on a risk-free 10-year treasury. Tough choice, (*sarcasm on*) but you can't live in a bond (*sarcasm off*)!

Broker and owner don't have incentives aligned in a traditional tenant pays fee arrangement. Call it 1 month fee that the tenant would be paying (again, I don't believe that today any tenant ought to pay or should pay only if getting offsetting incentives - free months - from the landlord). If the place is priced too high to maximize the broker commission, the broker can encourage reducing the monthly rent a bit, but the owner has then lost out on months. The broker fee is fixed as a % of the annual rent, but the owner loses months.

Hi, I visit the Streeteasy website occasionally and saw this post. You all seem to be very saavy on rentals. My husband and I plan to sell our house in the 'burbs and rent in Manhattan. I'm trying to get some education. From what I'm hearing, renter should not be paying fee these days. I would rather not rent from condo or co-op owner. I'm thinking my focus should be more on these buildings that are owner/manager rental buildings that are no fee. I've seen Glenwood's ads in the Times. Do I have to track down these different owner/manager bldgs. and contact each for their availability or are there rental brokers who see everything that's out there and can zero in for me and ... their fee will be paid by building? If I'm being naive, forgive me. Thanks for your input.

The worst part of renting from a condo owner (or co-op owner) is that many of them are inexperienced and nervous.

To answer your questions, a lot of the rental buildings have detail on their sites and they are responsive because they'd prefer you without a broker. Some have said that some buildings offer incentives OR pay your fee, but not both. I don't know how true that is and offer no opinion. There are some brokers who just do rentals, some of whom know how to negotiate well (and some of course who don't) and some who might even offer you a rebate.

Frankly, if you get a reply from a broker suddenly to this thread offering their services for free and telling you it costs you nothing, ask two questions, what is in it for YOU that you are giving them a free commission even though it isn't out of your pocket, AND, this threat is 20 long and not a single broker has offered any helpful advice, so why is the broker only willing to help when there are dollars. NYC real estate, treat carefully, even rentals which might be much better than buying for you.

My continued plea for renters to insist on the upper hand.

Owners should pay fees.

Not renters. With the limited exception that a renter specifically hires a broker to help with a search, in which case, if it is not a rental building (i.e. it is a condo or coop), the max that the renter should pay is 1 month, NOT 15%

The owner is otherwise the one receiving the service of the broker listing and showing his apartment. Therefore the owner should pay. In this environment, the tenant shouldn't feel the need to pay.

No one seems to like my crusade against fees!

Interestingly, neither of the two apartments I wrote about originally have moved.

As a Agent I will be happy to tell you why most of us have not posted a word here...you seem to already know it all and are not open to facts. As you said this is a crusade for you. You seem to be the expert.
Sigh...
But here you go anyway:
The better apartments have a fee even in the worst markets (and this is not the worst market--not for months). Yes if you are OK living in a generic box in a less than prime location you can find no fee. If you want that Townhouse 1BR in the Village or Chelsea Seminary, or that Prewar 2BR on Central Park, or the art deco studio...you will pay a fee.
I often get calls from customers who; when i tell them there is a fee, tell me they have seen many no-fee apartments just as good...this begs the question "why didn't you take them?" The answer is usually, Oh I didn't like it, location, view, etc. So the fact is they have not seen a no-fee that was 'just as good'

The final hole in your theory? The unit at 1965 Broadway where the tenant pays the fee (BHS--22K), has an application on it, the one that is no fee (DE-21K) does not.

Nice try Richard. The original post was 4 weeks ago, the listing was 2 full months ago and just now there's an application on it? Hardly a good job brokering. Besides, the rent was cheaper than 21.
Also Richard, I didn't advocate brokers not being paid. I advocated the owner paying.
Lastly, seriously, 1965 is not a generic box building? You have to be joking.

Landlords have a bit more of the upper hand, or they think. Brokers want renters to pay because they are the supposed lesser party in the mix and so easier to get the renter to pay a higher fee then when the broker is negotiating with the owner to get the listing in the first place. So brokers won't try to change things and are less likely to be frank with the owner. Perhaps after more condos sit for more nmonths, they'll cut rent or think about the fee.

Bluegreen yes, but I'm not certain owners are well served either even with the "upper hand" vs the renter. The condo where the renter pays the fee, plus where the renter has to pay condo application fees and moving fees, will move more slowly than if the owner greases the wheels of getting things done. The fee may be paid by the tenant, but the economic cost may be borne by the owners which is probably why rental companies, i.e. professional owners, pay their own fees.

Brokers provide a valuable service in marketing apartments. RichardHamilton has it exactly right. If an owner has a desirable apartment, he/she will list with a broker and demand the renter pay the fee. If a renter wants to go the no fee route, they can choose the more expensive management companies, craigslist or negotiate on a condo or coop that has been listed with a broker for many months with no takers (in other words, not the best units).

Brokers do provide a valuable service marketing apartments. The service they provide is to the owner, helping the owner find a tenant vs. all of the competing properties especially including professionally managed properties. Yes, there are also brokers who work with renters finding them a place and their value certainly is to the renter and they ought to be paid by the renter.

Yes, the owner can seek whatever value he wants, especially if he has something great. It is interesting that you describe more expensive management companies as an alternative. That tells me that you know (whether you've thought it through or not) that the brokerage fee is ultimately borne by the owner rather than the renter.

As for condo and co-op units that have been listed with a broker for many months with no takers, it is interesting that you call them not the best units. Perhaps they are mispriced? Price and value have to be aligned.

The original discussion was based on two nearly identical listings at $3500 and $3600. How about we look at Richard Hamilton's $3600 rental listing http://streeteasy.com/nyc/rental/496543-coop-201-west-16th-street-chelsea-new-york . That listing has been cut 20% and has sat on the market for over 4 months since the last price cut.

Good job RichardHamilton. On behalf of your clients, of course.

"The original discussion was based on two nearly identical listings at $3500 and $3600." And the apartment that is reportedly under contract is the one represented by a broker with a "renter pays" offering. It doesn't matter who is getting the most from the services of the broker, but whether the tenant population is willing to pay. Splaken, try as you might, you will not change the fact that owners of desirable apartments in NYC have a lot of leverage.

It took over 2 months for the apartment with a fee to go into contract. Who knows what the ultimate fee was, but the price was lower than the owner pays apartment. Meanwhile, at least 3 months of lost income for the owner. Could the owner have done better by greasing the wheels by paying the fee? I don't know, do you? But no professionally managed property company would allow 3 months of vacancy.

"Splaken, try as you might, you will not change the fact that owners of desirable apartments in NYC have a lot of leverage."

Further, you aren't really thinking about this completely. An apartment owner of a great apartment ought to be able to find a tenant faster, meaning an easier job for the broker. So the owner ought to be the one who captures the majority of the total amount that a tenant is willing to or can pay, and should want to minimize the amount of transaction fees payable to the broker. The owner is in the best position to negotiate the fee and give his premium listing of a great apartment to a broker who understands the value of the apartment and is willing to take a lower fee to do the services on behalf of the owner of finding a tenant, as the task is easier. As bluegreen says above, it is not in the interests of the broker however, to change the system because the broker can maximize the transaction fees for himself by dealing with the fee on the back end and convincing the owner that his brokerage services are "free" to the owner. And all around, the evidence is clear in listings like the one I posted from RichardHamilton that has sat on the market for 4 months after the latest price cut. Or is clear when people make statements like yours above that an alternative for a tenant to a fee apartment is a higher priced apartment with a more expensive management company (i.e. more money going to the owner) that has no fee.

An owner might want to attract a long term tenant willing to pay a fee for an longer commitment. Renters looking to rent only one year may be far less willing to pay a fee and that would be rational. However, tenants unwilling to pay a fee may be perceived as less committed or less credit worthy and therefore less attractive to owners. Higher turnover causes higher vacancy, re-marketing, painting expenses.

Really?

Some owners have no clue. We tried going the condo route and amazing how many unfurnished apartments had older appliances than good rental buildings. And how they don't paint fresh and make the bathrooms and kitchens look spotless for showing, we were told so many times that the owner wants to wait until they have a tenant before they paint and fix the bathrooms and stuff and oddly, most of the brokers completely agree with us when we said we thought it was stupid not to show your best. Besides just a turnoff, especially the bathrooms, you kind of wonder if the owner will do regular maintenance when you are renting or will be easy to deal with. All the background checks on the tenant and you don't get to know much about your owner.

Interesting comment from darylun. My concern re renting a coop or condo is: if you like the apartment and would want to stay more than 2 years, perhaps you can't renew because of rules or the owner now wants to sell. That's why I think I would be more comfortable with management company rental building. Any comment on this?

Here are my thoughts as a renter who has no problem paying a fee. I think PMG is spot-on on the fee issue: it makes the fee-payer incentivized to stay longer. During negotiations, I've used the fact that I'd be paying the fee as leverage to set up terms such as a 3-year lease with exclusive option for me to terminate anytime after the first year with X days notice.

The truth of the matter is that in the end, the owner does pay for the fee: to the fee-paying public like me, I just tack it onto the rent when comparing to other places, so the rent needs to be accordingly discounted. Because so many people refuse to look at for-fee apartments flatly, I find that for-fee apartments often represent the best deals out there because they have to over-discount to make up for the fact that no-fee-only renters refuse to look. Thus, owners are doing themselves a disservice generally IMO.

Tigerlily, I think the best way to deal with what you are saying is to be upfront about it. If you tell them that you are interested in a longer-term setup and are not interested in a situation where the owner is going to be selling or returning to the apartment in a year or two, most brokers will tell you the timeframe & intentions of the owner at first viewing. The best thing to do, IMO, is to ask for a multi-year lease with options for you to terminate. If the owner has intentions of not renting the place out for very long, this'll flush them out even if the owner does not agree to the terms. If they don't agree to the terms, this can become leverage to have them pay part of the fee since you don't want to pay the full fee for just a 1-year lease. Often, the broker will step in and eat part of the fee, but only if there's only one mouth to feed (which is why I don't use a broker myself and only contact the listing broker directly).

In any case, renting from a management company doesn't really resolve the issue, IMO. A classic MO of rental companies is to increase rents of existing tenants at higher rates than market. So although you don't have to move in 2 years, without a guaranteed price, what's the difference really? If you get into a situation with a private LL who has no intention of selling and is reasonable about rent increases (and decreases as of late), which I have now done 2 times, life is quite easy. You also get access to a much higher-quality and unique mix of apartments at what I have found to be favorable prices compared to rental buildings.

"We tried going the condo route and amazing how many unfurnished apartments had older appliances than good rental buildings."

Part of the advantage in going to condo route, IMO, is that the apartments are actually professionally marketed. I.e., the broker sites have large numbers of pictures, flooplans, etc. If you are looking for a newer kitchen, and Corcoran is not showing a picture of the kitchen in one of the 8 photos it has on its site, you can be pretty sure the kitchen is not one of the high selling points of the apartment.

I've actually found listing brokers to be very upfront about warning me that "this place isn't going to be very polished in terms of X" at initial contact, without any prompting from me. If you are in the market for a fancy kitchen, they have no desire to take a couple of hours out of their day to show you an apartment without a fancy kitchen.

My point here is that if you (or the owner) are going to pay a fee, you should get service commesurate with the fee to make your search quicker and easier. This includes accurate pictures of the place, information from the broker about the nature of the place and intentions of the owner, etc.

Paying a rental fee is for out of towners only in this day and age.

Repeating the same drone sentence without explanation is for people living a robotic existence only in this day and age.

Hey, look at this discussion, columbiacounty is blocked!

Inonanda - I tried the buyer's broker route and requested a fancy kitchen. Perhaps it was a bad broker but every apartment I saw had a horrible kitchen. Wound up calling a rental building and getting the generic box, but at least it meets my basic criteria. I should also add that my monthly payment is significantly below the typical $3,200-$3,500 that condos request.

For the most part, buyer's brokers add little value IMO. I'd much rather search SE myself, listings w/ addresses only, skip the obvious bait-and-switch ones (concentrated at certain brokerages typically, or broker has too many listings), and contact the exclusive brokers directly myself. Am I missing out on some "real" Citi-habitats listing out there? Sure, but who cares -- there are hundreds of other places to choose from that actually market professionally.

I noticed that broker to the stars Richard Hamilton's rental listing is still on the market. Good job Richard:

quoting myself the other week:
How about we look at Richard Hamilton's $3600 rental listing http://streeteasy.com/nyc/rental/496543-coop-201-west-16th-street-chelsea-new-york . That listing has been cut 20% and has sat on the market for over 4 months since the last price cut.

interesting on the two original listings:
1965 Broadway, Apartment 21K, $3600, owner pays fee. Elliman listing 1204983 - UNRENTED

1965 Broadway, Apartment 22K, $3500, renter pays fee. BHS listing 1076031 - RENTED

So is Richard right? More expensive all-in costs for the renter are better? SILLY!

What's so difficult to understand? You go to the no-fee one and offer $3200. They say no, $3500 is as low as they'll go. You go into for-fee one and offer $3200, owner picks up fee. They say no, but will do $3300 with tenant paying fee of one month. You do some math on a 2-year lease and determine the for-fee place is cheaper.

Revisiting: 1965 Broadway, Apartment 21K, $3600, owner pays fee. Elliman listing 1204983 - UNRENTED

Still unrented.

Oh, and Richard Hamilton's listing, only took 10 months to rent.

The fees are pretty steep and from a condo owner prospective, has no value. I screened for the background and credit during my process. The fees, over $1500, are unreasonable considering the board nor the management company are not adding any value - and no legal considerations are provided with the payment. In fact, they can be an obstacle to the rental process - and result in potential losses of time (which equal money) for the owner. I just lost over $8100 because the board and the management delayed my application approval process and I had to pay for my tenant's living and storage expenses for a month. He was not happy either. I wonder if there is recourse for me to recover some of these money?

Probably not, mlbizsrv. Cost of doing business, really. For better or for worse, you simply need to plan that for a condo, you need a signed lease and application at least 1 month before the lease start date. For coops, probably more.

Unless I'm misunderstanding you -- did they take longer than 4 weeks on the application approval?

Hi, inonada, thank you for the good feedback. No they did not take more than 4 weeks, within the 30 day limit. Actually, the issue is also that of being fair and transparent. If a broker is on the board of the Condo for years, he will push it through regardless of time (it happened 6 years ago with my previous tenant). This time, the tenant is a friend of mine and we are encountering all the problems when we are outsider. This is when some kind of consumer protection laws may help?!

Another thought, I just think that if that is how the world is run, we should have public announcements let the prespective tenant know to start looking for a replacement apartment at least 1 month before their rent expires. Also, disclose the fees upfront is also a good idea (and in this market, the owner will most likely foot all the fees). This is where the industry people, like this website, can do to educate the general public.

I learned an expensive lesson and I hated everyone / every minute of it :-) Well, live and learn.

mlbizsrv, it's nice to see that you are looking to add transparency and honesty to the process. Thanks.

Let me tell you that I have unfortunately met plenty of brokers who have no qualms about wasting my time showing me unsuitable rental apartments, or who missed appointments leaving me standing in a lobby. So the coin has two sides.

If I have to pay a fee, then I expect to have someone listen to what I am looking for and make an effort to find it for me, to show up for appointments they have made, return my calls and follow up all paperwork on a timely basis. I do not want to be shown places that need extensive makeovers, or are peculiarly laid out, just because the broker happens to have the listing, or a friend of their's has it. Having gone through the process several times before, I know the market and I know what I want. There's plenty available in my price range.

Then two years ago, there was the broker, a VP at a big company, who actually threw himself on the couch when we got to an apartment I had called him about and waved us to look around. He made it clear that although it was his listing he didn't like the place and it was a bother to show it to anyone. I ended up renting it because it suited me and the building was nice, but working with him was like pushing a fridge through sand. He was extremely unprofessional and the paperwork dragged on forever. He didn't deserve a fee. I've been a broker in another city, so believe me I know.