New Yorkʼs apartment rental agents have given a resounding thumbs down to calls to cap their commission rates.
In a move they claim will help make it more affordable to rent an apartment in the city, Council members Keith Powers and Carlina Rivera last month introduced a bill to cap rental agent fees and security deposits to one month’s rent.
The bills also call for installment options to pay off security deposits and for brokers to provide itemized reports of their fees.
“It’s a completely misguided bill looking to place the blame on real estate professionals, but they’re not the cause of why housing is so expensive where we all live,” said Gary Malin, president of Citi Habitats, one of the city’s biggest rental brokerage firms.
Noting that land costs, construction, operating costs, maintenance and taxes have all risen dramatically in recent years, Malin added, “First and foremost, if someone chooses to work with a broker, it’s a voluntary decision.
“They’re choosing to work with a real estate broker because they believe this professional is going to guide them through a very difficult and expensive proposition.”
With glitzy television shows of million dollar listings and headlines focused on the city’s priciest deals, it’s easy to believe New York agents are raking in the money. However, the vast majority of New York’s 50,000 licensed agents are barely scratching by, according to numerous reports.
According to the Bureau of Labor Statistics, the average real estate agent earns $45,990 each year, although the range in income is massive.
One-tenth of real estate agents earned less than $23,000 last year and 10 percent earned more than $110,000.
While records for rental agent commission are not separately recorded, Jesse Rhinier, a broker with City Connections Realty, said the brokers who would be impacted by the proposed legislation are the bulk of those already operating on tight margins.
“I don’t think people understand a lot of the broker fees are split four ways,” Rhinier explained. “Many rental deals are with co-brokers where two agents are paid and then the agents split the commission with their company, so that’s four people taking a cut.”
Rental brokers also face desk fees, advertising costs, their own health insurance bills on top of the costs of doing business.
“Many people focus on the large salaries real estate brokers can make, but they aren’t paying attention to those on the lower rungs of the market,” explained Rhinier. “For newer agents who come in without contacts, without relationships and without experience, the first year or two can be really difficult.
“A lot of people would realize this law makes it more difficult and they wouldn’t even enter the industry.”
Rhinier contends that, in New York City, the top 10 or 20 percent of agents and brokers make 80 percent of the industry’s annual income.
He predicted a chilling effect on rental brokers who might reconsider representing or listing properties because it’s not worth it anymore, which could lead to more vacancies throughout the city.
“The margins have gotten thinner recently and I think [these bills are] cutting it too thin and will chase people out of the industry,” Rhinier said. Malin predicted that the proposed changes could shave up to 40 percent off a rental broker’s income.
Ironically, the legislative move comes as more people opt to use the services of a real estate agent when buying a home.
According to the National Association of Realtor’s 2018 report, 87 percent of all US buyers bought their homes through an agent. Figures are not availabel for rental agents.
When considering only millennials, 90 percent of those buyers used an agent; among those at least 63 years old, 84 percent used a broker to buy a house. The same report showed than 90 percent of home sellers used a real estate agent for their property, consistent across all age ranges.
According to REBNY’s quarterly broker confidence report, brokers were more confident in the residential real estate market in the fourth quarter of 2018 with a confidence rating of 5.25, compared to the previous quarter’s 3.97.
“REBNY brokers continued to weigh the effects of federal tax reform and trade negotiations, potential rent regulation reform, and changing interest rates in measuring their confidence for this survey,” said John H. Banks, REBNY President.
“Their rising confidence in the real estate market now and six months from now marks a brighter outlook for improved market conditions in 2019.”
In New York City, many renters use a broker because the competition for apartments is so high and it is common here for agents to require a fee of one month’s rent or 15 per cent of the annual rent.
Say an apartment is renting for $3,000 a month, the agent fee would be 15 percent of $36,000, or $5,400. The tenant pays the $5,400 fee to the brokerage and in turn, the brokerage pays the agent their share of the commission, or “split.”
If there are two agents — one representing the landlord and one representing the tenant — that commission is probably divided 50-50 between the two brokerages and then split again to each agent. If each agent has a 60:40 split, they each make $1,620.
Amidst the rhetoric, it has to be noted that real estate brokers’ commission rates are not regulated in any state and are always 100 percent negotiable.
Renters can pay whatever they and the agent agree is a fair amount and, while the renter is under no obligation to pay more than they want to, the agent is equally entitled to walk away. If real estate commissions were set by law it would be considered price-fixing and a violation of the antitrust laws.
According to Gary Malin, the proposed commission cap is tantamount to that.
“People are not forced to use real estate brokers, they choose to work with real estate brokers and they have the right to negotiate,” Malin said. “There’s no reason for a group of city council members to bring the bill to the table to solve a problem that doesn’t exist.”
For many, the question is now moot.
Former agent Kim Moore told Brokers weekly she was forced to give up on the business when she couldn’t make it past the first few months.
“After three months as a Manhattan rental agent, I hadn’t made enough to pay one month of my own rent,” said Moore, now a project manager with a major US brand. “It’s not the easy money that many people think it is.”