New York State regulators, in late January, unexpectedly released new guidance that would shift the burden of paying rental agents onto the landlord and away from the tenant. The change, which followed on the heels of the state’s sweeping rent reform laws, has drawn a rebuke from the real estate industry and praise from renters and tenant advocate groups.
The changes have specifically drawn the ire of the Real Estate Board of New York (REBNY), the city’s real estate trade association. REBNY plans to file a lawsuit against the New York State Department of State, according to The Real Deal.
In many other states, the landlord already pays the brokers’ fee, which is similar to sale transactions, where the seller pays the buyers’ broker commission. But, outside of the debate on who should be footing the bill, the actual role of a rental broker has also been at the center of the debate.
What do rental brokers do anyways?
“The purpose of a tenant’s agent is to represent the best interest of the tenant,” Gina Castrorao, the rental manager at REAL New York said, in a statement. “Opposite of the landlord’s agent, the tenant’s agent has a fiduciary responsibility to the tenant to be loyal, obedient, confidential, and maintain full disclosure to their client.”
According to Castrorao, specific duties include negotiating a lease, combing through thousands of apartments to discern which ones will be the best for the clients, setting up appointments and taking hours to tour apartments, covering the expenses incurred while searching, coordinating the lease signing and updating the client throughout the process.
“After the client has successfully signed the lease, the agent is then entitled to their fee for the work they’ve put in throughout the process,” Castrorao said. “Afterward, the agent will continue a relationship with the client in order to serve them further in the future.”
Not every client has simple needs either, according to Eric Benaim, the CEO of Modern Spaces, a brokerage in Queens. It’s not like every client picks an apartment they find online, visits it once and rents the first apartment they found on their own.
“A lot of clients are very specific,” Benaim said. “A client could be like, I’m looking for something in the 30s, between Park Avenue and Fifth Avenue, and my budget is $5,000 and I want a doorman and I have a dog and my dog is 18 pounds and I’m a smoker. So they have to sift through thousands of listings and plan a day to take out this particular client.”
If you hire the right agent, the brokers’ fee that you pay, you can make up in a few months, as agents are in a better position to negotiate down rent, according to Benaim. Most of the time, an agent can save you $100 to $200 per month.
Jared Antin, director of sales at Elegran, also said it’s wrong to believe that agents simply open doors to apartments.
“While some tenants may choose to forego professional representation, NYC’s rental scene is notoriously competitive and complex; having an agent that knows the ins and outs of the market can be the difference between finding the perfect home and getting stuck in home search horror story,” Antin said.
As a landlord’s rental agent, there are also various jobs to do, including discussing comps with the landlord, scheduling a photographer and floor plan expert, make brochures or show sheets, advertise on a listing portal, collect paperwork and run credit checks.
“The job they are performing is to find a qualified tenant for the landlord which requires several components, which is why a commission is deserved,” Castrorao said.
How do rental agents make money?
The amount of work that’s going into each client, doesn’t always mean the agent is going to be paid, Benaim explained. Agents are doing a lot of work, for a lot of different clients, at all times and are not salaried.
“For that one client that they got lucky with, there was 10 other clients that they took out, a couple of whom probably stood them up, a couple found a deal with a cousin or whoever and didn’t end up going through them,” Benaim said.
Agents also need to cover a lot of costs themselves. A listing on StreetEasy, for example, costs money daily for real estate brokerages. And agents also need to be working on odd days and at odd times, due to client’s changing needs, according to Bill Kowalczuk, a broker with Warburg Realty.
“Whether a tenant or landlord broker, we are ‘on-call’ and can never dictate our hours,” Kowalczuk said. “We have to be available whenever a client wants us to be.”
“My schedule is ‘eyes open till eyes shut,'” Kowalczuk added. “You’re only as good as your last paycheck. You never know when the next one will be put in the pipeline.”
Kowalczuk also echoed Benaim’s sentiments, saying an agent can work with several people over the course of 40-hour work weeks and never get paid. Kowalczuk also gave some insight into the typical money agents take home from commission.
“For a $4,000 rental, a 15 percent fee would be $7,200,” Kowalczuk said. “75 percent of the time, you are sharing that fee with another broker — $3,600 to each firm. If you receive a 70 percent split with your firm, which is on the high side for NYC, your commission check would be $2,520. After taxes — based on 28% — and all expenses, you end up with about $1,650 to $1,700. If you are renting $2,000 apartments, you can cut those numbers by almost half.”