New York City’s rental market broker fee system, which has been especially perplexing for out-of-towners, is now mostly a thing of the past.
But outside the five boroughs, just how rare is the practice of tenants having to pay landlord listing agents a fee before they can sign a lease?
Interviews with real estate agents and industry pros across the country point to Boston as the last major stronghold where the practice is still common.
“Nationwide, it’s almost entirely correlated with low vacancy rates,” said Lee Lin, co-founder of apartment search platform RentHop. “You wouldn’t see it in Vegas or Dallas. When the market is tight, landlords can be very picky on tenant qualifications and feel less pressure to market their property.”
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Prior to the new guidance, “no-fee” apartments already accounted for a significant chunk of the rental market in New York City. About 45 percent of the city’s rental listings last year included a broker’s fee, according to listings platform StreetEasy, cited by the Wall Street Journal. Renters who specifically hire brokers — as opposed to finding an apartment through an online platform or dealing directly with a landlord — will still have to pay for the service.
“In Boston, it is very common to see the ‘collect own fee’ policy from the landlords, just as it is in NYC,” Lin said.
But that also may change.
Carol Bulman, who leads an independent brokerage in the Boston area, said there’s been a lot of pressure there to pass “some form of rental control to combat rising rents and the related costs.”
“With the New York change, there will be pressure by trade groups and citizens to follow suit,” said Bulman, president and CEO of Jack Conway & Company. “Many of the larger landlords already pay brokerage fees but this could put pressure on the smaller ones who will presumably incorporate cost for marketing into the prices for rent.”
In up-and-coming rental markets across the U.S., it is far more common for landlords to pay the fees for brokers acting on renters’ behalf.
In fast-growing Nashville, Tennessee, rents have spiked 83 percent over the past decade. Brokers there regularly take prospective renters on tours of multiple properties for free, collecting a fee from landlords, which comes from their advertising budgets.
Mike Pappas, president and CEO of Miami-based Keyes Company, agreed that rents likely increase whenever the financial burden gets shifted to the landlord as it has in New York. In most markets, those fees are already baked into the monthly rent. “The tenant is paying it already,” he said. But, he added, “better to pay it over 12 months than to pay it up front.”
In a quick response to the New York City change, Boston Mayor Martin Walsh announced on Thursday he would create a group to study broker fees and their impact on local renters.
The city is the third-most expensive for rentals in the U.S. — New York is No. 2 — according to the latest analysis from rental listing platform Zumper. So it may not be surprising that landlords feel empowered to demand fee payments from tenants.
But in the country’s most expensive rental market, San Francisco — where average rent is $3,500 a month — the practice of having tenants pay landlords’ broker fees has not gained traction.
“It is standard that landlords pay our fees to find a qualified tenant,” said Jackie Tom of the brokerage Rentals in SF. Tom said she was aware of some agents who collect fees from tenants when unable to get an exclusive listing, but even in such cases the landlord will generally cover a portion of the fee as well.
“I’ve only heard of [tenant-pays fees] being a big concern in New York,” said Betty Granoff, founder of San Francisco-based Relocation Breakthroughs. Her assessment was from conversations with transplants to the Bay Area from around the country.
On the other hand, renters — or their employers who relocate them — still hire firms like Granoff’s to facilitate the apartment-hunting process, and pay a fee for that service. Such agencies are also common in markets like Washington, D.C., and Chicago — and sometimes, the renter doesn’t have to pay them either.
“In Chicago, they tend to call them ‘locator services’ or ‘apartment-finder services’. But officially they are licensed brokers not given an exclusive with the landlord,” Lin said. “They are free for the tenant in most cases because they can show a portfolio of open listings where the landlord is paying a referral fee (half a month to one month).”
David Wolf, CEO of Chicago-based On Collaborative, said the landlord typically pays the commission on rentals in the city. The listing and renter’s brokers will split one month’s rent in half. For new construction rental buildings, developers will in many cases pay the renter’s broker a full month’s rent, he said.
“But not all landlords are going to pay the referral fee, and in those cases the tenant would need to pay,” Lin noted.
In Los Angeles, also one of the priciest rental markets in the nation, landlords pay the broker’s fee. But like New York and many other cities, renters likely have to put down a first- and last-month’s rent, security deposit and an application fee. Though New York City Mayor Bill de Blasio this week said he wants to offer some renters an alternative to the hefty security deposit requirement.
In Miami, the ninth most-expensive rental market, landlords will pay the real estate agents the commission equivalent to one month’s rent. That would get split between the listing agent and the renter’s agent, brokers said.
In the end, someone will have to pay for the broker’s services, said Larry Rideout, chairman and co-owner of Boston-based Gibson Sotheby’s International Realty. The question is, will it be the landlord or the tenant.
“I don’t know how that works in a free market,” he said.