No story is easier to write than one about a broker charging a $19,500 commission to rent an Upper West Side apartment for $1,725 a month.
Or a $15,000 fee to snag a Flushing pad with a rent of $1,100.
Finding quotes of outrage is like finding water from a boat.
“Totally not fair,” Christian Garbutt told Gothamist after passing on the Flushing apartment because he couldn’t afford the fee. “Normal New Yorkers, a lot of people, don’t have that type of money saved up.”
But all is fair in love and war, and the competition for drastically underpriced, rent-stabilized apartments is indeed war-like — for good reason. Their vacancy rate is well under 1 percent, and they are tremendous bargains.
From a financial standpoint, shelling out $20,000 to lease a $1,725 unit makes perfect sense when the alternative is leasing a market-rate equivalent for $4,000. In the first scenario, the cost after nine months is $35,525. In the second, it’s $36,000.
After breaking even in the ninth month, you’re saving $27,300 a year. These savings continue until you die, at which point you can pass the apartment on to your kid, who can keep it for the rest of his life as well. Rent-stabilized leases come with succession rights.
Over 80 years at that rate, the total savings would be $2,184,000. Given that market-rate rents will grow faster than stabilized rents, the savings could easily be $3 million or $4 million. In that context, a $20,000 rental fee is a terrific investment. It’s like buying a lottery ticket that is guaranteed to win.
The law does not specify what a broker can charge, but when tenant-friendly politicians and regulators get wind of a high fee, they come down heavy. The Upper West Side fee and others charged by City Wide Apartments was brought to the state’s attention, and the Hochul administration got the brokerage to return $210,000 to tenants and pay a $50,000 penalty.
“Excessive broker fees are not just unfair — they’re a threat to hard-working families looking to call New York home,” Gov. Kathy Hochul said in a press release.
“A broker’s fee must represent charges for actual services provided,” the release said. “Real estate licensees are obligated to act with honesty in their dealings with the public and cannot charge exorbitant commissions that have no reasonable relationship to the work involved in earning the commission.”
But as explained above, it’s perfectly reasonable to pay a big commission for a permanently underpriced apartment. “These deals are a steal for the tenant, and legality aside, they are foolish not to take them,” tweeted Stephen Smith, who has 49,000 followers @MarketUrbanism.
When someone answered that most tenants can’t afford five-figure fees, Aaron Carr, the tenant advocate who runs the nonprofit Housing Rights Initiative, replied, “Perfect response.”
But more than one in five rent-stabilized tenants earns more than $100,000, and the law says people of any income can lease rent-stabilized apartments. A broker with a winning lottery ticket will have no problem finding someone willing to pay for it.
Andrew Barrocas of the brokerage MNS said he charges the standard 15 percent of the annual rent even for low-priced units. On a $1,000-a-month apartment where the government controls the rent, the commission would be $1,800. But he said some “bad apples” will charge $10,000, then kick some back to the landlord.
“I’m sure that happens,” he said.
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Another rent-stabilized haircut, this time with shears
In fact, it happens everywhere in the world where the government sets an artificially low price for a high-demand, low-supply product. Economics are like gravity.
Government officials, or at least the people who write their press releases, like to pretend otherwise.
“For those who think they can take advantage of tenants seeking housing, you can rest assure[d] the Department [of State] will hold them accountable,” said New York Secretary of State Robert Rodriguez, crowing about the City Wide settlement.
Time for a reality check, Mr. Secretary.