In many ways, New York’s residential real estate scene is ideal for a millennial generation intrigued by the prospect of entrepreneurship and social status.
A broker who has made his or her bones may soon be wading among the city’s wealthiest and dealing properties that some can only dream about stepping inside.
Established brokers make their own hours, are their own boss, and can afford an impressive residence of their very own.
But the green pastures typically follow the dark valleys of a new broker’s novice years. Real estate pays handsomely, but it also pays by commission.
Even in New York, a city that’s running out of boroughs to house the masses that wish to live here, it can take a year or more for a fresh broker to build a steady book of business; to rely on a constant flow of cash.
So it would be understandable if brokers who had yet to hit a fluid commission stride did not agree with Attorney General Eric T. Schneiderman’s recent open letter, which asked brokers to consider rebating their commissions in order to boost the activity of the market.
Schneiderman’s urges come on the heels of new legislation, an amendment to Section 442 of the New York Real Property Law, that declared the practice of rebating as legal and not an ethical grey area as it had previously been considered.
“I encourage all real estate brokers and salespersons in New York to consider enhancing the choices available to real estate buyers by offering lower commissions (by means of rebates) to some or all of your clients,” wrote Schneiderman.
“I also emphasize that my office will investigate any allegations of boycotting or discrimination against brokers engaged in rebating or other lawful discounting practices.
“Finally, I urge consumers and other buyers of real estate in New York to take note of your right to bargain with your broker for a lower commission.”
According to Schneiderman, rebating by real estate brokers can greatly reduce the costs of buying and selling property and even facilitate new and innovative business models.
And he is urging the real estate community to “embrace this opportunity to be more competitive, and improve the choices available to New York homeowners.”
One reason his office helped initiate the legislative change was because the AG was concerned that confusion over the legality of rebating may be hindering efforts of real estate brokers to employ more consumer-friendly business models.
He points to the widespread use of sophisticated real-estate search websites that allow buyer-side brokers to offer more limited-service, lower-fee models, under which clients do more of their own legwork when searching for properties.
He said brokers adopting such models can offer lower commissions (by rebating) and, in principle, may also be able to serve a larger number of clients.
But will brokers be willing to start competing on price in such a high demand market?
Would brokers that are still building a financial framework be open to lowering their paychecks for the sake of overall competition? According to one rookie broker, yes they would.
Justin Montero, a brand new broker at Citi Habitats agrees with Schneiderman’s sentiments and advises even younger brokers like himself to consider taking a small shot to their wallets now in order to receive a bigger boost to their bank accounts later.
“Real estate is a relationship business and it’s about earning the trust and respect of your clients,” Montero told Brokers Weekly.
“It’s all about your clientele really,” said the rookie, stressing the importance of having wiggle room when the situation calls for it.
“With real estate it’s all about referrals. Who knows what they’ll bring you long term?”
Montero believes that sacrificing a small percentage off each deal will both increase the volume of deals he does to a point that pays for the individual discounts on each transaction.
He also concurs with Schneiderman’s belief that enough brokers competing on price will lead to an overall healthier market.
While young-gun Montero may be on board, veteran Jacky Teplitzky of Douglas Elliman is certainly not.
“We work very hard for our commissions, and the cost of doing business in New York is too high,” Teplitzky said. “Besides, there is no need to stimulate the housing market — it’s red hot!”
Montero said that although his 15 percent commission is his main source of income, building a perpetually-fruiting book of business requires a broker to be “flexible” and “creative.”
For this reason he chooses to embrace discounting his fees when necessary.
In order to sustain that, Montero recommends that those interested in entering the field acquire funding via other means before embarking on what could be a lean start.
Montero spent his first year out of college juggling a bartending job and the role of soccer coach at his old high school. When he had saved enough to move forward with his new venture, he joined the ranks at Citi Habitats.
“I made a good amount, now I can relax and focus on real estate,” he said. “You have to devote all your time to real estate, otherwise it’s not really worth it.”
All of that focus helped net the former soccer coach his first deal, a studio rental in Gramercy Park during his first month in the field.
“I have rarely seen a part time salesperson go on to achieve true success in real estate,” said REBNY senior vice president, Joseph Barbaccia who agrees with Montero’s mindset. “One must make the commitment and jump into the deep end of the pool.
“A sales person needs a financial plan in the beginning to get oneself beyond the learning curve,” Barbaccia added, agreeing with
Montero’s plan of building a modest nest egg before abandoning the safety of a scheduled paycheck.
Teplitzky agrees with taking the proper precautions before starting down the broker career path.
“New agents should consider working with a seasoned veteran first to see if they really like working in real estate,” she told Brokers Weekly. “They could work as an assistant to another agent, or join a team where they will have an opportunity to learn the trade without the pressure of doing big deals right away.
“The biggest misconception new agents have is that the company will give them leads and that the commissions will come immediately,” she continued.
“This is very far from the reality of our business — it requires hard work and can take a long time to build up the experience, contacts and know-how to become a success in real estate.”
While the field is split, the option is there for New York’s sales force nonetheless.
“This law has the potential to breathe new life into competition in the residential real estate brokerage industry, to the benefit of all New Yorkers,” said Schneiderman. “I urge [brokres] take advantage of this law and help reinvigorate price competition among real estate brokers in New York.”
Time will tell how many brokers, both raw and tenured agree to take a price hit in the short-run.
However, if even those without an established financial fall back agree it’s prudent, it may easily become a popular tactic.