At 10:23 p.m. on September 17, agents at the startup brokerage Nooklyn got an unwelcome email from the firm’s tattooed co-founder Harley Courts. “APPLICATION FEE CHANGES!” the subject screamed — with a red siren emoji.
“As of last Friday, the laws have changed and we can now only charge the cost of running a credit report to our renters,” Courts wrote, referring to a decision by the state about how the new rent law applies to brokerages.
With application fees limited to $20 by the state, Courts and his two partners decided to cut Nooklyn’s from $100 to $9.29. To help compensate for the lost revenue, they also took 10 percent off agents’ commissions. Moreover, they altered the Bushwick-based brokerage’s payment structure so agents get paid 30 days after a renter moves in — on a bi-monthly schedule — rather than a couple of days after the deal closed.
Courts and his partners promised to cut their own pay by 25 percent, but that did little to assuage their many unhappy brokers.
“I don’t care how they try to justify it, try to explain it, either way you’re taking money out of our pockets,” said Brooklyn Leigh St. John, a Nooklyn agent who is considering leaving.
Nooklyn is one of many rental-focused brokerages grappling with the cap on application fees, which has led to both financial losses and confusion about how the rules will be applied.
Some brokerages initially thought the cap only applied to landlords, and continued to charge high prices. Nooklyn and others are now offering refunds to renters who were charged more than $20 between June 15 and Sept. 13, when the law was finally clarified.
“I cannot imagine that any firm in the city or in the state, if they are doing any number of rental deals, has not been affected by this,” said Sarah Saltzberg, CEO of Bohemia Realty Group. While she hasn’t made any structural changes to make up for the “significant loss” at her business, she said she was strategizing ideas and would likely make changes later.
Courts said he hoped the firm’s new application fee would be the cheapest option for renters, and give his firm a competitive advantage in a tight market.
Interviews with more than half a dozen current and former Nooklyn agents, most of whom wished to remain anonymous, suggested the commission cuts and payment delays had caused disquiet among the firm’s agents, many of whom are relatively young and deal predominantly in rentals.
For one Nooklyn agent who did not wish to be identified, the announcement was the catalyst for her decision to leave — something she said she had been mulling for a while.
“It’s a sign to me that if this app-fee law is going to affect Nooklyn’s bottom line so much that they have to cut agents’ commissions and hold their commissions hostage, there’s clearly some deeper financial problems we’re going to see come up,” she said.
Agent Christine Barker, who also left the firm after the announcement, said she was concerned about Nooklyn’s reliance on the fees. “I can’t allow for a startup company like this to use my earnings to bail them out,” she said.
But in an interview, Courts denied any financial problems at the company, which he said had “millions of dollars in the account.” He said the founders decided on the changes rather than abandon the company’s ongoing investment in technology.
“The thesis we came to is, we’re either going to fire all our engineering staff and everyone associated with making this company cool, and just be a brokerage, or we’re going to do this,” he said.
He argued that changes to Nooklyn’s payment structure simply brought it into line with other firms. “Industry standard takes longer than 30 days across every brokerage,” he said. “We were paying agents faster than any company in the industry. Now, we’re just paying agents the same as everyone else.”
The Real Deal asked multiple brokerage firms, both large and small, how they paid their agents, and found that systems varied across the industry.
“We pay four times a month,” said Khashy Eyn, founder and CEO of Platinum Properties, who clarified that payments depend on when the commission comes in.
At Bohemia Realty, Saltzberg has a similar system. Her agents are paid once a week from checks that came in the previous week. “It’s very important to us that people get paid right away,” she said. “They don’t get paid, they don’t eat.” Only on rare occasions does the business pay agents out of pocket, she said.
David Schlamm, founder and CEO of City Connections, also operates on a quick turnaround. “We pay our brokers every Monday at around 2 p.m. on any deals submitted by 5 p.m. on Friday,” he wrote in an email.
Major firms including Compass and Corcoran either declined to comment or did not respond to written requests.
Nooklyn’s Courts said that while some agents were upset about the changes to their commissions, the company had never charged them desk fees and consistently provided them with leads through its platform.
“Most of our agents gave us a hug,” he said of the response at two team meetings held in the week after his initial email. “There are some people who are dramatic and are going to be emotional about money and stuff but we have not had any meaningful agent transitions at all.”
St. John, the Nooklyn agent, said the announcement was the latest in a series of blows to rental brokers this year.
“I feel that with everything that’s happening there’s a big movement of agents moving out of the business because your return on the investment is half of what it used to be,” she said.
St. John had been taking time off when the announcement was made, and only found out when she went into her office this Monday. “I was livid over it,” she said. “Everything I’m working now, I won’t get paid until December.”
Through tears, she said she spent Tuesday morning at her home, wondering what to do.
Courts denied that many agents have left the firm in the past month, stating that turnover was “nothing out of the normal rotation.”
“Nooklyn controls listings and controls leads,” he said. “If 100 agents leave, 100 new agents are going to replace them and make money.”
Do you know more? Email [email protected]