What do brokers do?
When you start looking for a new place to live, you might want some expert help. That’s what a broker is for. He or she basically acts as a middleman between you and a potential landlord.
After receiving all the information about your dream apartment, such as the desired price range, neighborhood, and number of rooms, the rental broker will start sifting through the offers on the housing market.
How do brokerage fees work?
If everything works out and your broker finds you a match, you will often have to pay for their services. But when, exactly, is that money owed? A broker fee is usually paid on the day you sign your new apartment’s lease. The broker fee is added to the handful of existing payments you need to settle upfront, namely the security deposit, and your first month’s rent.
However, if you decide to part ways with your broker before signing a lease on an apartment, you won’t owe anything—even if the broker has spent time showing you around available rental options.
How much is a broker’s fee?
Standard broker fees range from 12 percent to 15 percent of your first year’s annual rent. For example: If your monthly rent is $2,500, at a rate of 15%, you would have to pay a broker fee of …$4,500!
In some areas, your broker might ‘only’ charge you the equivalent of one month’s rent. And if you’re searching for an apartment in a less competitive market (stay clear of NYC and Boston!), you might choose to tackle the apartment hunt yourself, without any broker. If you are searching solo, here are some important things to ask about any prospective apartment rental.
What’s the difference between fee and no-fee apartments?
In most cases—at least if you’re searching in a competitive housing market—there is some kind of brokerage fee involved. The actual difference between a fee and a no-fee apartment generally comes down to who is paying it… More about that in a second.
If you’re lucky enough to find a no-fee rental, this means you don’t have to pay for broker fees yourself. Why is this the case? It’s likely one of two reasons.
- There is no broker fee involved at all. This might mean that the landlord is searching through the pool of applicants themselves.
- The landlord is covering the brokerage fees themselves. A word to the wise: Some landlords might use the ‘no-fee’ tag as a marketing trick and in the end will try to get their money back by raising your monthly rent later.
If the apartment’s ad doesn’t include any mention of ‘no fee’, you can safely assume that you’ll end up paying a broker fee.
If your dream apartment is marked as ‘fee-rental’, your landlord will expect you to cover the broker fee. This is the case even if the broker solely acts as the ‘landlord’s agent’(aka a listing agent).
Interesting side note: In 2019, new guidance from the Housing Stability and Tenant Protection Act came into effect, making it illegal for tenants to pay a broker fee if the broker was acting as the landlord’s agent. However, this ruling has since been reversed. (Womp womp.) So even if a broker is not directly supporting you with the search, but rather is working for your future landlord, you could be on the hook for their fee.
Also good to know: If you hired an independent broker, and they were the one who found you your dream ‘no-fee rental’—you’d still be obligated to pay your broker fee. That’s only fair; they put in the work, and brokers have their own rent to pay!
Are broker fees negotiable?
There are definitely some factors that would make it easier for you to negotiate your broker fee. For instance, if your future rental apartment is on the luxurious side (and your rent is rather high), it is easier to bargain. In such a case, the brokers fee would be very high to begin with (since it’s a percentage of your annual rent), so even if it’s lowered, your broker will still walk away with a nice chunk of change.
You can also try to negotiate with your landlord about who will be paying the broker’s commission. You’re more likely to be able to do so if you’re looking in a rental market where there is a lower demand for flats. That means that there are a lot of empty flats that landlords are struggling to rent out. If this is the case, landlords might offer to pay part of the broker fee themselves.
Is it worth paying a broker fee?
The big disadvantage of hiring a broker is having to pay their fee. But depending on your individual situation and budget, it could very well be worth it. What are you getting for your money?
You save time.
Instead of hitting the listing platforms yourself and constantly checking your phone for fresh alerts of new apartments popping up in your favorite neighborhood, you can outsource this task to your broker. This should hopefully allow you to jump directly to the next stage of the process: the IRL apartment viewing.
You can make use of all the broker’s connections.
You might never find your dream apartment on your own, if its owner prefers to work with a particular broker. In addition, good brokers tend to know the market and the people involved, and you benefit from that expertise.
The apartment might be in better shape.
It’s not as hard and fast rule, but apartments that are only accessible with the help of a broker tend to be in better shape than ones accessible to the broad public.
How do broker fees work when you’re buying a home, rather than renting?
Around 90% of homes on the market today are sold with the help of a real estate agent, or broker. On average, agents take a 6% commission on the listing price when a property is sold. This is usually split between the seller’s agent, the buyer’s agent, and the respective brokers.
When a home is sold, who pays the broker fees? It’s kind of a complicated question. Technically, the seller pays the commission when the property is sold, but many sellers factor in the commission when coming up with the listing price, so the buyer is essentially the one who ends up covering the broker fees.