let’s talk: NYC RENTAL COMMISSIONS
Good Morning!
This past week has been CRAZY up in the NYC real estate market. Media outlets and agents posting all over the place that “renters no longer have to pay realtor’s commissions”, and now just days later, we see everywhere that realtors can actually collect commission from renters! The thing is, it’s not that simple, and these headlines are a bit misleading. So let’s talk about what is really going on here.
So, as we do, let’s talk Real Estate, let’s talk NYC RENTALS & THE SAGA OF THE BROKER COMMISSION…
For those of you that may live OUTSIDE of the Greater NYC area, it is important to know one thing about the NYC market – RENTALS ACCOUNT FOR A LARGE PORTION OF THE CITY’S INVENTORY…. I’m talking 67% of the inventory. This is a HUGE contrast to the rest of the U.S. where, on average, 64% of homes are owner occupied. This means that a large number of the real estate transactions conducted in NYC are rental related. So when headlines everywhere said that brokers could no longer charge commissions to renters, people freaked out. But it’s not that simple…
HOW COMMISSION TRADITIONALLY WORKED WITH NYC RENTALS
Historically (or at least as long as I have been a realtor ;0 ) commissions in the NYC rental market could typically work a few different ways…
#1 NO FEE
A NO FEE listing signals to the tenant that there is usuallynot a broker fee associated with renting this apartment. But make sure to always check the listing description because that is where you will find the the real truth on if there is a broker fee or not.
If the description says “Broker’s CYOF”… this means, broker’s collect your own fee. Which REALLY means, that the broker/realtor who shows you the unit, can actually charge you a commission.
If the description says “OP”… that means the owner pays! The landlord or management company would pay any realtor involved in the transaction.
#2 FEE – (I am sure there is a proper term for this but I cannot think of what it would be)
If you are looking at a fee apartment… you, as the tenant, can expect to pay anywhere from 1 month’s rent to 15% of annual rent on the realtor commission(s). This can play out a couple of ways…
If you, as a tenant, find a unit online, and there is a listing agent attached to it, and the listing agent shows you the unit themselves (without another realtor involved)… the listing agent will probably charge you 1 month’s rent in commission.
BUT
If you, as a tenant, hire a realtor to help you find an apartment, and your realtor finds you an apartment but there is a listing agent attached to it representing the owner, and that owner did not agree to pay their realtor commission… you may find yourself paying 15% of your annual rent to cover both of the realtor’s commissions.
If all of this sounds confusing, don’t worry, its because it actually IS confusing! It is always a case by case basis on if there is a fee attached and what that fee might be! You have to trust that your realtor will explain any potential fees to you any time you go see a unit because let me tell you…. those fees can SERIOUSLY ADD UP & quickly.
HERE IS WHAT THE NEW GUIDANCE SAID…
Last week the state essentially announced that going forward that last scenario could no longer happen. I will lay out that scenario once more below just to avoid confusion…
If you, as a tenant, hire a realtor to help you find an apartment, and your realtor finds you an apartment but there is a listing agent attached to it representing the owner, and that owner did not agree to pay their realtor commission… you may find yourself paying 15% of your annual rent to cover both of the realtor’s commissions.
Essentially, going forward the landlord’s agent must be paid by the landlord and the tenant’s agent (if they hired one) can be paid by the tenant. This would prevent the tenant from having to pay BOTH realtors. But here is the problem… SO many landlord’s signed listing agreements with their realtors under the impression that they did not have to pay that realtor ANY FEE AT ALL. And now, under this new guidance, they would have to pay their realtor (potentially) thousands of dollars every time they filled one of their units. Which means, their operating expenses can add up quickly, and they may not to reevaluate the initial rental rate they had agreed to in order to cover their costs. This guidance from the state pretty much came without warning so no one knew how to handle the situation. What we saw were listing agents panicking that they would not actually be paid for the work they had put into their rental listings. And while that may not sound like the biggest deal to some, these commissions are how realtors make a living so it was a bit of a mess.
Since then, the real estate board of New York and a handful of NY brokerages and attorneys have gotten involved and…
HERE IS WHERE WE ARE AT NOW
The industry file an Article 78 petition in Albany stating that the new guidance was an “unlawful, erroneous, and arbitrary” interpretation of the NY rent laws that were passed back in June.
The industry and the state are set to meet in court in the weeks ahead to work out a proper guidance for this law but until then, realtors can go back to conducting business as it was beforehand.
Woo, that was a long one today guys but I am curious to know… what do YOU think is going to happen with commissions in the future?! Where will we end up?! Do you think landlord’s should be paying the agents? Will we start to transition to a model where each party pays for their own respective agent? Let us know your thoughts!
Happy Wednesday!
Erin
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Data Sources for Today’s Content:
Me – this is based on my own personal experience!
https://www.valuepenguin.com/new-york-city-renters-statistics
