Negotiating broker fee if I have no broker

Why are you asking the board instead of asking him? Serious question - Do you not feel comfortable asking him that?

your math is good and i usually do offer a discount to tenants coming in without a broker. There are a couple things that you are missing though:

1. The listing agent/broker may not cobroke. If they are not in REBNY they have no legal obligation to cobroke their listings.

2. The listing broker has to do all the work that a cobroking agent would perform for half of the commission. When I cobroke I expect the tenant's agent to compile the application, organize deposits and checks and make sure the tenant arrives at the lease signing.

3. You are not a broker. Since brokers are in the same profession and could be on the other side of the transaction there is a Golden Rule at play which mitigates the financial loss to the listing agent. They have no incentive to discount the commission to you, especially if the listing has many potential applicants.

People actually still use brokers to look for rentals in Manhattan? I understand for buying since the seller pays the fee, but for renting where the renter pays the fee, there is very little incentive to use a broker of your own since all listings can easily be found on streeteasy. I'd imagine that most people don't.

Hi nyconfused, like snezanc, I'm also a broker. I'm always surprised by the number of clients I hear that believe the same myth that you do, though I don't blame them as the math makes sense on paper. But in practice, in a very competitive market like the one we're in, if I have a hot listing that has multiple qualified applicants, I'm not going below 13.5% for a direct deal. It's simple supply and demand...you have no leverage to negotiate commission, even as a direct deal, when there are other equally qualified people who will pay more commission than you.

In the market we're in, with very low inventory, it's more about just getting that great apartment vs. not getting it instead of trying to hammer out an amazing deal. That was 2008-2010, and it's long gone, i'm afraid. :-/

Hope this offers you some perspective, you will have more success if you realistically assess the market you're in and who your competition is, and how that affects your ability to negotiate.

ps- snezanc, great information in your comment

>It's simple supply and demand...you have no leverage to negotiate commission, even as a direct deal, when there are other equally qualified people who will pay more commission than you.

What if someone will pay more rent, but less commission - what does the broker do then?

nyconfused I have friends & coworkers who have driven brokers down that low. It only works if they are really trying to get rid of a property. The worst you can be told is no.

"What if someone will pay more rent, but less commission - what does the broker do then?"

Interesting scenario, I believe the broker is obligated to report any and all offers.

A $3,000.00/month apartment is listed with a 15% broker's fee ($5,400.00). Total rent is $36,000 + broker's fee $5,400.00 is $41,400.00 for the rental.

Counter offer from a possible tenant, I'll give you $3,100.00/month with a 5% broker's fee ($1,860.00). Total rent is $37,200.00 + broker's fee $39,060.00.

Everyone wins!

I never recommend to my landlord clients they allow a bidding war situation to happen. It's one thing to accept higher offers over ask in a sales situation that ends. It's completely another thing to remain in an ongoing relationship with someone you have just decided to ask more money of than they expected and give them use of premises you own and hope that they maintain. That situation changes somewhat with a large management company but a private owner should have an equitable and ethical relationship with their tenants. Especially if they live in the building.

I don't think a bidding war in a rental is necessarily a bad thing like you're describing. No one is forcing the client to go up...if the apartment is listed as $4000, but the client loves the apartment and feels it's worth paying $4100 or $4200, they'll still be really happy to get the property and harbor no ill-will against the landlord.

Greensdale: If a client wanted to offer more rent but a lower commission, I would absolutely tell the owner immediately. Not doing so is a pretty big breach of ethics. I tell the owner ahead of time before listing, though, that if i'm representing their property and doing the work to get them a good tenant, we might lose a qualified applicant who simply don't want to pay the fee, or is lowballing. That's how it goes sometimes.

I still don't understand why a renter/tenant pays the broker THEY ARE FORCED to use by the landlord. When you purchase a place, the seller (owner) pays the broker's fee.

If I show up to a streeteasy open house (without a broker) and rent the place. Why should I pay 15% or any fee to rent the place (other then admin fees)?

consigliere -"If I show up to a streeteasy open house (without a broker) and rent the place. Why should I pay 15% or any fee to rent the place (other then admin fees)?"
Landlords use brokers to market our apartments when we can get away with it - why wouldn't we..... If you don't want to pay a broker then maybe someone else will (or our apartment sits vacant and I have to rethink the listing).

OP - your scenario makes it seem like every other applicant came with a broker and you are the only one without a broker - in such a scenario I'd say you've got some leverage - but your scenario is unlikely in this market - in this market there might be several applicants who don't have a broker - this gives the listing broker the leverage.

Rule of thumb though - never pay a broker fee without trying to negotiate it lower - AND if you're happy with your rental broker do him/her a favor and post your experience on your FB page/twitter account. OR negotiate a discount in your fee based on a recommendation on your FB page.....if I were an agent and you have 1,000 FB "friends" - a post on your page could be very valuable to me.....

Consigliere ...because the system is a joke, 15% of the annual rent is absurd. You can train a seal to walk a person thru an apartment and point out (with their flipper) which room is a bedroom, a bathroom, closet. Pay em in fish.

Walk away....$10-12k+ just to walk thru the door of a rental is outrageous. If people stopped paying this extorion you'd see how fast the fees would come down when apartments sat vacant.

"People actually still use brokers to look for rentals in Manhattan? I understand for buying since the seller pays the fee, but for renting where the renter pays the fee, there is very little incentive to use a broker of your own since all listings can easily be found on streeteasy. I'd imagine that most people don't."

What planet are you from? People use brokers for rentals in NYC probably 20X more than all the other parts of the USA combined. Its super common, especially for people from out of town, who don't know a particular area (say someone moving from BPC to Riverdale) or people who have more money than time.

Even me, who hates rental brokers, has used them on occasion when I had more money than time.

>What planet are you from?

California. With Governor Moonbeam.

JAZZMAN, then since the RE market is so hot why don't sellers force the borrowers to pay the brokers?

confused - everything is negotiable, you have the right idea. 10-20% rental commissions are completely ridiculous for many renters, but it is an unfortunate reality for many looking in NYC who aren't willing to spend a little time to look for no fee apartments. I found a nice no fee apartment on the UWS several months ago while still living in San Francisco at the time and I have two dogs (including an 80+ pound one) - it only took a couple of days of searching/calling - I could have found a nice no fee apt. in a couple of hours without the dogs. The only way I would consider a fee rental is if I literally had zero free time to search for no fee apartments and was fine with simply throwing money away or found a place that I was absolutely in love with and knew I would be there for at least a few years.

Because asking a buyer to pay the broker is so unusual it would turn off a lot of buyers - there are enough buildings out there for sale that if I knew the seller wasn't willing to pay the broker then I'd never spend the time to do the due diligence.

But....since the market is hot it's easier for brokers to sell the buildings (it would/should take less of their time) - so were I to sell today I'd expect to pay a smaller fee than if I were trying to sell in the bad market of 2 years ago.

unfortunately the rental broker will NEVER be eliminated in NYC - too many landlords require them - and for many renters (especially for rich newcomers) the broker actually provides a reasonable service.

"me ... has used them on occasion"

California, despite being cold and damp, used to have a good education system.

Jazzman, it seems to be unusual because it is inefficient. If the apartments and the market are "hot" wouldn't it make more sense to bring down the fee to 5% because of said market. I didn't bring a broker, I just saw an add. I did the work and found the place on Streeteasy, should I be punished?

I am only speaking of the situation where the renter shows up without a broker.

I think just the opposite is true - in a hot market you should be willing to pay 20%. The broker has something that arguably 10 people want. In a hot market you should pay more not less.

Brokers are much less likely to negotiate fees today than they were 6 months ago. And, during the summer there will be many brokerages who will have a company wide policy of not negotiating fees at all.

Realize that per the tax returns of all people who label themselves are rental brokers - the City reports that the average rental broker makes $20k per year. It's not like these guys are making millions.

>The broker has something that arguably 10 people want.

The broker doesn't really have anything. The owner has something and has hired the broker to find the best tenant.

> In a hot market you should pay more not less.

It's very generous of the owner to give the benefits of the hot market to the broker and not take it for himself.

Yes but the issue is it is the Landlord's property, not the broker.

The broker has a greater supply of tenant's and they should be getting the best offer. Not making the most money for the broker.

The Landlord should be getting the benefits and not the broker who doesn't own anything.

Let's review

1. Owner/Landlord owns the property

2. Rental inventory is low

3. Broker is getting paid by the person who rents the property

4. Renter shows up without a broker of their own

So there are more people renting and inventory is low, but the broker should get 15%. Makes little sense to me.

Why does the broker deserve 15% again? It seems that you only explained why the owner landlord is an idiot.

Again you failed to make any points.

Consigliere - In your hypothetical, the only person who benefits in the end is you, the client without the broker. The landlord has no incentive to lower the broker's commission (in fact, normally in the contract it states that he can't do that) because lets say after a year, you leave. The unit needs to be rented again but now brokers won't work with a landlord who would be willing to negotiate commissions for them and he has to do it himself. In the long term, it isn't in a landlord's best interest to screw over brokers.

Also, in your example of a 5% commission ($1860), 50% of that goes to the brokerage and 50% the broker keeps. Then let's say there's $200 on marketing, then taxes, and what does the broker go home with? Around $300. That's why brokers refuse to work for commissions that low.

The broker offers a service that the landlord agrees upon. Whether or not you agree is another matter. In that case, you should direct yourself to no-fee listings in which you rent directly from management.

"The broker doesn't really have anything."

I disagree -the brokers I "hire" have something - They control the listing, they control the applications that I see. I've given them that power (this avoids me needing to hire an internal person to control the listings.) If prospective tenants don't want to pay the fee (all/part) then I may never see that application.
Personally, I don't really expect a broker to show me an application from someone who has expressed interest in paying a reduced fee. I understand that those apps get buried.

Consigliere -I act in a respectful manner on this blog (you should do the same). A bit of unsolicited advice. A guy (you) who is bitching about paying a silly little broker fee shouldn't call a self made guy (me) an "idiot". I've proven I'm anything but an idiot. Further, calling anyone an "idiot" if you really want their help is well......idiotic.

The broker industry exists for a reason - it will never go away because guys like me want it to exist.

Consigliere - some great comments.

1) You are 100% right that the broker is obligated to present all offers. That's why all offers should be submitted via email.
2) You are 100% right -- It is perverse that a tight rental market means higher broker fees - it should mean owner gets more rent! Broker's job is easier should mean earn less!

The best brokers I have encountered say 15% if co-broke or 1 month rent if direct.

A good broker uses rentals as the opportunity to establish new clients for buying/selling and to serve existing buy/sell clients. By demanding 15% for direct, broker is short-term greedy. He'll turn off potential clients and piss off existing ones.

Commissions are set in the listing agreement between agent and owner before the agent starts showing. The agent's client is the owner, so he/she has a fiduciary duty to to the owner, not the applicant. Though I agree 15% for an unrepresented applicant is ridiculous, this is NYC. It is what it is. If the owner feels the agent is being greedy, it's up to the owner to get a new broker.

If a property is being represented by a broker you can't negotiate with, while it could be perceived as "not fair" by the applicant, it's equally justifiable for an owner to say, "I don't want a tenant who can't afford the broker's fee".

3 sides to every story.

It's funny that some people don't get the concept: Big landlords have in-house brokers. They are called LEASING AGENTS. Smaller ones outsource this job to rental brokers. Its not a difficult concept.

In more marginal areas of NYC, or even in Manhattan when the market is soft, owner pays the fee. In Manhattan, even now, this most true for Harlem and above. Below Harlem, tenant pays. Because the LL can get away with it.

>owner to say, "I don't want a tenant who can't afford the broker's fee".

FLMAOZ

lame

Jazzman, I didn't call you an idiot. How about some reading comprehension? I called the owner in that situation an idiot. Read it again, get back to me.

Jazzman, now I am confused...

Here is your quote "Personally, I don't really expect a broker to show me an application from someone who has expressed interest in paying a reduced fee."

So let me get this straight, you sign an agreement with a broker but you don't expect the broker to show you all applications if the renter wants a reduced fee. Interesting, interesting.

Let's go to the video tape...

Owner hires broker who lists $5,000.00 his apartment on streeteasy (that is it). The agreement states that the broker is to get a 15% fee from the renter.

Potential qualified renter ("PQR") sees apartment add on streeteasy and doesn't hire his own broker. As it is, PQR can try to rent the apartment which would cost:

$60,000.00 Rent + $9,000.00 (Broker Fee) = $69,000.00

Instead the PQR offers $5,500.00 per month and a flat $1,000.00 broker fee.

$66,000.00 Rent + 1,000.00 (Flat Fee) = $67,000.00

The broker in total worked 10 minutes on streeteasy add and another 50 minutes showing the apartment and sending you the information for a total of 1 hour of work (this is generous). The broker says "No" without presenting the offer to you.

So you are cool, with turning down a 10% increase in the rent to be collected because the fee was reduced.

PQR can afford the fee, he just doesn't want to spend the money to pay it.

*ad

Remember PQR showed up by himself, he is offering the owner much more money.

>I don't want a tenant who can't afford a broker's fee

That's idiotic thinking. What's next, you check his car to make sure he has $10,000 rims? I mean who wants a tenant that "can't afford" $10,000 rims.

NYCFUND, it is incredibly smart thinking.

Rims = Success

They tens.

greensdale
about 17 hours ago
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Member since: Sep 2012
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>owner to say, "I don't want a tenant who can't afford the broker's fee".

FLMAOZ

actually, this is a common sentiment among many established new york landlords.

vslse65
about 18 hours ago
Posts: 96
Member since: Feb 2011
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Commissions are set in the listing agreement between agent and owner before the agent starts showing. The agent's client is the owner, so he/she has a fiduciary duty to to the owner, not the applicant. Though I agree 15% for an unrepresented applicant is ridiculous, this is NYC. It is what it is. If the owner feels the agent is being greedy, it's up to the owner to get a new broker.

If a property is being represented by a broker you can't negotiate with, while it could be perceived as "not fair" by the applicant, it's equally justifiable for an owner to say, "I don't want a tenant who can't afford the broker's fee".

3 sides to every story.

correct.

Consigliere
about 3 hours ago
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Member since: Jul 2011
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Jazzman, I didn't call you an idiot. How about some reading comprehension? I called the owner in that situation an idiot. Read it again, get back to me.

Jazzman, now I am confused...

Here is your quote "Personally, I don't really expect a broker to show me an application from someone who has expressed interest in paying a reduced fee."

So let me get this straight, you sign an agreement with a broker but you don't expect the broker to show you all applications if the renter wants a reduced fee. Interesting, interesting.

Let's go to the video tape...

Owner hires broker who lists $5,000.00 his apartment on streeteasy (that is it). The agreement states that the broker is to get a 15% fee from the renter.

Potential qualified renter ("PQR") sees apartment add on streeteasy and doesn't hire his own broker. As it is, PQR can try to rent the apartment which would cost:

$60,000.00 Rent + $9,000.00 (Broker Fee) = $69,000.00

Instead the PQR offers $5,500.00 per month and a flat $1,000.00 broker fee.

$66,000.00 Rent + 1,000.00 (Flat Fee) = $67,000.00

The broker in total worked 10 minutes on streeteasy add and another 50 minutes showing the apartment and sending you the information for a total of 1 hour of work (this is generous). The broker says "No" without presenting the offer to you.

So you are cool, with turning down a 10% increase in the rent to be collected because the fee was reduced.

PQR can afford the fee, he just doesn't want to spend the money to pay it.

i have actually proved many a client a complete fool by doing something similar. raising rents to cover the cost of the fee, then marketing property as "no fee". owner loves it: after first year he has a much higher rent role. the client always pays more in this case. so stupid....

>i have actually proved many a client a complete fool by doing something similar. raising rents to cover the cost of the fee, then marketing property as "no fee". owner loves it: after first year he has a much higher rent role. the client always pays more in this case. so stupid....

Now you are pro-tenant?

""Personally, I don't really expect a broker to show me an application from someone who has expressed interest in paying a reduced fee."

"That's idiotic thinking. What's next, you check his car to make sure he has $10,000 rims? I mean who wants a tenant that "can't afford" $10,000 rims."

No, but a car dealer would NOT say "i'll sell you this car, and take the salesperson's commision out of the price!" That is the correct analogy. The broker is performing a service for the LL. Now, if the potential tenant wants to pay no fee, it IS reasonable (and fairly common, actually) for the LL to offer free rent for a month or two in return for a long-term lease, which can be tailored to offset the entire amount of the fee.

It is ALSO common for LLs to screen applicants in part based on their ability to pay a fee. If they are not that liquid, why bother. In really tight markets they ask for bank statements. This is a proxy for that. I personally would think it would be better to rent to someone who can afford first month and a 1 or 2 month deposit PLUS the 15% fee in return for two months free rent versus someone who said "I'll take it, just pay my fee upfront."

Since in this market LL's can be choosy, they often don't even need to offer a free month at all.

This is all Manhattan below harlem, I mean. As I said, above, its generally LL pays fee. But even up there, I have encountered my fee paid by tenant in return for two free months scenario.

BTW - in the car scenario, people often negotiate down to the wholesale price (or below), and/or get free things thrown in, and/or better financing deals. But for car leases? Do they get no money down AND no commision for the salesperson? O% of the time.

>It is ALSO common for LLs to screen applicants in part based on their ability to pay a fee. If they are not that liquid, why bother. In really tight markets they ask for bank statements. This is a proxy for that. I personally would think it would be better to rent to someone who can afford first month and a 1 or 2 month deposit PLUS the 15% fee in return for two months free rent versus someone who said "I'll take it, just pay my fee upfront."

What kind of people are we talking about here?

Jason10006, your response was long winded so only read enough to see that you are clearly missing the point.

Do you want a spendthrift tenant or one careful with his money?

You can't just show up and rent the apartment directly from the owner. If the unit is listed with a broker, the owner has signed an "Exclusive Right to Rent" agreement detailing the commission structure. If the owner then decides to rent directly to you, the owner must then pay the commission due the brokerage. And that's not going to happen.

The orderly put Jason's helmet on too tight again.

Every tenant and LL has the right to conduct their business as thy see fit. Why would a LL looking for the most financially sound tenant be an idiot? OTOH, a tenant has every right to find a no fee or reduced fee unit if 1mo or more in fees is against their better judgment. There are plenty of for rent by owner or direct from big LLs. Further, if someone signs a multi year year lease and amortizes the fee they paid by the # of years they rent, it may still be cheaper than being in a no fee property where the rents go up by 10% or more YOY.

To each their own.

>Why would a LL looking for the most financially sound tenant be an idiot?

Couldn't they compromise and require the prospective tenant to pay 15% of the rent for new furniture?
Seriously, I don't see how it makes a tenant financially qualified to spend 15% of rent upfront on a third party. How about they just show you a wad of cash and none of that trick where you have a roll of singles and one $100 bill on the outside. Or show a couple ounces of gold of that might be deemed money by stevejhx.

One of my clients is an out of town owner.

I get 2 applicants. All things being equal except...

One says, can you reduce your fee and if so, I'll get you the req'd docs. (I charge 1 month rent on direct customers).
Another gives me all required docs and checks.

The owner has signed an exclusive allowing me to collect the agreed to fees. Who gets the unit?

Thought you were a photographer.

I'm a photographer, property manager for our portfolio and licensed agent (had to get licensed to conduct prop mgmnt)

"What planet are you from? People use brokers for rentals in NYC probably 20X more than all the other parts of the USA combined. Its super common, especially for people from out of town, who don't know a particular area (say someone moving from BPC to Riverdale) or people who have more money than time.

Even me, who hates rental brokers, has used them on occasion when I had more money than time."

I'm from New York, born and raised. I found it very easy to find an apartment without a broker when renting. The only time I used a broker when renting was when I first moved to Manhattan and didn't know any better. That was a dumb move though. It was also before streeteasy existed. It's very easy to find apartments on your own now. Really no need for brokers.

If I find an apartment and I reach out to the broker to schedule viewing, and broker shows me nothing else. I would not expect to pay full fee, nor would I. We are making your job easier.

So you'd rather have a broker show you 20 crappy apartments first and then show you a good one and then you would be willing to pay a full commission? Bullshit*t, you're not willing to pay a commission and looking for justification.
As far as previous posts about landlords wanting to see that potential tenants have the financial wherewithal to pay a commission, that's not correct. What landlords want to see is if potential tenants are chiselers. Because past behaviour is an indication of future behaviour, someone trying to chisel the broker on the way in is also someone who is more likely to chisel the landlord once they get in.
Think of this scenario: You have 2 potential tenants both of whom want your apartment. The first one makes only 33 times the rent, but has perfect credit and has rented an apartment of equal rent for 5 years and has never been a day late with rent. The second one is a wall street guy who makes 80 time the rent not including his bonus, rented a beautiful house in the Hamptons last summer for $100,000 and the amount of damage was greater than the security deposit, and usually pays his current landlord 2 to 3 months late.
Who do you choose? The guy who "can't afford" the apartment but has a history of breaking his back to make sure his landlord gets paid, or the guy who can easily afford the apartment but just often doesn't get around to doing so.

Also, the scenario of what happens if you offer a higher rent but a lower Commission are not being presented correctly. Any broker worth their salt has you sign their standard representation agreement before showing you the apartment (or in the case of an open house before beginning any negotiations - in fact broker disclosure portions are required by the Department of State before beginning any negotiations). This is going to lay out the broker's commission structure. And while a broker is required to pass along any offer made to the owner, the requirement about the commission disclosure is whether or not the broker is collecting a commission from the tenant, but not necessarily the amount of it. So you make an offer to the landlord, the landlord accepts it, and now you owe the broker the commission that is outlined in the original document you sign unless the broker specifically agrees to take less. It's not an amount negotiated between landlord and tenant.

It used to be illegal for a landlord to force a potential tenant to use their broker where the tenant had to pay a broker's fee. It also used to be illegal for managing agents to collect broker's fees from tenants in buildings they managed. I'm pretty sure the reason for this was to prevent situations where brokers charged an outrageous fee for a below market Rent Stabilized unit and kicked some of it back to the landlord. But I guess at some point New York State Department of State reversed their position on the above.