4 percent is the new 3 percent

New York /
Dec.December 29, 2008 06:00 PM

Real estate brokers may have it rough as sales slow in the wake of the Wall Street meltdown, but they have one thing going for them: commissions for co-brokers are increasing.

Normally, a buyer’s broker gets a 3 percent commission on a home sale. But as sales grow fewer and further between, more and more developers are offering 4, 5 or even 6 percent co-broker commissions in hopes of enticing brokers to show their units to prospective buyers. The practice has become so common that a 4 percent commission for co-brokers is becoming the new standard for developments with large numbers of units to sell.

“It’s the norm for buildings that were undersold when the crisis hit,” said Michael Signet, director of sales for Bond New York, who recently sold a $530,000 studio at NV 101 N. 5th Street in Brooklyn, where the developer, Morton Group. offered a 4 percent commission. “Developers are definitely giving 4 percent, some are giving 5 percent, to incentivize brokers to bring our clients to the building.”

Developers offering 4 percent commissions include District in the Financial District, Park Columbus on the Upper West Side, and BellTel Lofts in Downtown Brooklyn. At Solaria in Riverdale, Arc Development has been choosing one unit at a time on which to offer a 6 percent commission for buyers’ brokers, according to Joseph Korff, owner of Arc.

It’s unclear if the practice increases sales, but brokers say it helps generate broker interest.

“When you’re doing construction and selling a building, you don’t necessarily always reach everyone you want to,” said J.J. Bistricer, the executive vice president of Clipper Equity, developer of BellTel Lofts. “We said to ourselves, ‘there’s got to be a lot of brokers who don’t know we exist.'”

To help reach a wider audience, Clipper started offering 4 percent co-broker commissions along with personalized invitations it sent out to 80 hand-picked brokers to spark their interest in BellTel Lofts, which has sold roughly 50 percent of its 219 residential units. Though not new, the developer is also offering to pay a part of the commission up front so brokers don’t have to wait for units to close in order to get paid.

“We feel brokers are the ones who are going to bring us the clients,” he said, so “that’s a big emphasis.”

Like other incentives, the commission increase
— which is not new, but has become more the norm as of late — can help make developments stand out from similar projects.

Theoretically, brokers would show their buyers only the apartments that best suit their needs, but in practice, brokers are “much more like likely to show the apartment that has a 4 percent commission,” said Brian Huang, head of the residential sales division at City Connections Realty, who represents both buyers and sellers.

That’s particularly true if they’re choosing between buildings with similar prices and amenities. “If you’re comparing apples to apples, why not take clients to the 4 percent building?” Signet said. “I certainly think [projects offering higher commissions] get more activity.”

The practice is more common at new developments than existing buildings. Individual homeowners can simply lower their prices, Huang said, while developers may not have as much flexibility, since they’re paying off construction loans.

“It’s the developers who have more leverage to [offer] the higher commissions,” Huang said. “They have a lot of units to move and it really helps their balance sheet.”


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