It is the perfect apartment.
There are brand new hardwood floors, plenty of natural light, and more exposed brick than a Restoration Hardware showroom.
Feeling naturally cynical after a long day of apartment searching, you brace yourself for the worst as the conversation moves in the direction of price.
But lo and behold, by some miracle the rent falls right within your budget range. Straining to contain your excitement as you fight urges to break into song and dance, you hear the dreaded words that bring you crashing back down to earth:
".....plus the broker fee"
Depending on who you ask, brokers fees are either a parasitic tax -- or even scam -- imposed by an outdated industry, or a small sum to pay for being guided through a decision making process whose outcome will have a pronounced impact on your quality of living.
Like with most things, the truth probably falls somewhere between the two, but before we get into that, let's take a step back:
What is a Broker Fee?
Generally speaking, a broker fee is a commission, paid by the renter, to the brokerage of the agent who helps the renter find an apartment.
Depending on the broker's policy, this fee can be owed simply if the renter's application is accepted, or only when they actually end up signing a lease. As a renter, you will want to be careful to read the fine print of any broker fee disclosure forms you sign, because you can end up on the hook for a fee even if you do not end up renting the apartment the agent showed to you.
Depending on the location, brokers fees can range anywhere from one month's rent, to a whopping 18% of the first year's rent total, to being virtually nonexistent (*cough* Detroit *cough*).
Sometimes you will find no fee, or partial fee apartments. In these cases, the fee is being paid by the landlord, or you are renting directly from them.
So, Do I Really Need To Pay a Broker Fee?
The answer to this question probably depends on the context of your renting situation.
In cities with hot real estate markets -- like New York City, San Francisco, or Boston, for example -- they very well may be unavoidable. Why is this the case? After all, if brokers are doing valuable work for landlords by sourcing qualified leasers, then why should renters have to foot the bill?
The short answer is: supply and demand. Landlords know that they can rent their apartments with minimal effort, as they have a scarce product that is in high demand. Put more simply: why pay a salesperson when the renter is more than willing to cover it for you? Strangely enough, it is often the agent who ends up taking the brunt of the frustration, when really it is misdirected ("Don't hate the player, hate the game").
This is why you should always approach no fee apartments in high demand markets with a healthy level of suspicion. Landlords pay broker fees to incentivize people to rent their apartments, and in a city where shoe box sized places go for millions, needing to do this likely means the apartment is:
- In an undesirable neighborhood
- Directly above a subway stop
- Pest infested
- The scene of a gruesome murder in the 1980s
Just kidding; of course, there are exceptions -- like when you find a landlord who only rents directly without the use of a third party brokerage -- but given their ability to outsource this labor at little to no cost, it is the exception rather than the rule.
That being said, if you:
- Have a limited window of time to rent
- Busy schedule
- Are relocating and have to go through the rental process remotely
In these cases, using a broker to help expedite the process and do the majority of the leg work can be invaluable.
Even if time and/or effort is not an issue, the guarded information an agent/broker has access to alone can make their services worth the cost. They will know which landlords are predatory, have access to listings you will not find on craigslist, and are able to get your application -- done correctly -- in the hands of the owner much quicker then you would have on your own -- something which can often make or break you in a competitive market.
How To Approach Broker Fees In The Renting Process
Regardless of whether or not you agree on the principle behind broker fees, in a certain cities they are not going away any time soon, so you might as well tackle them head on them with a strategy in mind.
- Consider how long you plan on renting. 1 month's rent spread over the course of three years is a small sum, whereas if you are only staying for a year, you are not getting as much value.
- Do not think about the fee separately from your rent. Prorate your monthly rent by dividing the fee by the number of months on your lease and then combining the two together -- this way you make your decision using the actual rate you would be paying at the end of the day.
So what do you think? Are broker fees a scam or well worth the money? Share your thoughts in the comment section below
