Would love something like this to kill (or at least severely maim) the broker industry in NYC. 0 value added at the cost of 10-15% of yearly rent.
For example, a new law in Germany to apply the "who hires pays" principle for brokers in the renting market basically made the renting "broker fee free" for renters. Previously, the landlords would hire a broker that needed to be paid by the renter. Why not, it doesn't cost them anything, and at least they don't need to have a contact with the potential renters. Now, that they have to pay for the brokers service themselves, it's suddenly not that valuable to them.
[0]: https://en.wikipedia.org/wiki/Principal%E2%80%93agent_proble...
It works similarly when software is chosen by people who have to use it versus those who do not. IDEs and text editors are usually chosen by the users, so there is competition on usability between different options. Timesheet and other HR software are usually chosen by upper management, and the people actually using them cannot switch, so there is not the same kind of competition on usability. Instead, they compete on other things that make them more appealing to those who can make the decision.
Tenants can't "shop around" for a different letting agent that won't charge them £250 for a £50 credit check. Landlords can.
Yes. The problem is that the one whose pocket the money comes from is not the one who selects the broker. Thus the person with the financial incentive to make that choice wisely is not the one making the choice. This is why it's a principle-agent problem.
The majority of apartments in certain cities charge this fee, so if you care to find one that doesn't you'd have to look for advertisements explicitly mentioning "no agent/broker fee". Maybe it's just my circle, but even the people I know that will look in less desirable locations for cheaper rent do not bother to look for this. It's also not far off from various psychological tricks seen in business - consumers do not behave rationally.
I'd argue it's even a bit worse than other sticker price bait and switch situations, because how many people know to look for this? Mostly only people that have signed a lease in one of these cities before, which for a place with a lot of transplants and subletting can be a surprisingly small number.
At some point I wouldn't even call it irrational to ignore the fee. Once you've decided on a place and receive the rental app to fill out, are you really going to turn back because you found out about the agent fee? Especially as time runs out to find a place and you realize more than half of them do the exact same thing?
I honestly wouldn't be surprised if some landlords have come to an agreement with the agent they use to get a bit of a kickback from the broker fee, unbeknownst to the buyer.
Nothing.
Clearly brokers are doing something or else people wouldn't pay for them.
My theory is the broker fee has positive selection for wealthier tenants, which for every property - low or high rent - makes for an economically better tenant. Raising the rent has the same effect. We care that there's cheap rent because shelter is a basic human right, and we appreciate that spending tons of money on rent couldn't possibly be good in a positivist economic sense, but of course raising the rent also selects for a wealthier tenant.
Replacing the brokers with software has a similar effect. If your users feel comfortable using a complicated website with no human beings involved, they are going to be wealthier.
This comes up everywhere. For example Oscar selects for a healthier insurance pool by being a complicated app - old people want real human beings to talk to and are turned off by apps, and they are also more expensive for insurance to carry, so it's a "win" for Oscar. Credit card only restaurants with lines make higher revenue because lower-ticket cash paying customers are substituted by higher-ticket credit card paying ones. And the iPhone is a $800 phone versus a $300 Android one, no wonder iPhone users spend 2-5x as much on IAP.
It's not unlike the role a recruiter plays for jobs.
In many cases (not talking about NYC here), what they're doing is simply blocking access to an apartment. You see an apartment, you have to deal with the broker / real-estate agent / makelaar. Or - you don't even see it in the first place, since it's only available via an agency.
This is similar to setting up a roadblock and collecting a transit tax; or the "troll under the bridge" from folk tales.
That being said - In some cases and some places brokers can help apartment seekers filter relevant apartments, and can help convince both the seeker and the landlord to compromise, agree to some arrangements to seal the deal. Another benefit of such type of apartment brokerage is that a broker with a minimum of reputation would not try to scam you (rent contract scams are a thing in some countries); and may be able to exert some pressure if, say, some serious problem is revealed right after you move in and the landlord doesn't want to address it.
They were, pre-internet. It actually made sense then in NYC with such complicated and massive amounts of inventory.
They don't make sense anymore. The only reason they still exist is because lazy landlords just want to stick with the system they've always known, because it feels "free" to them. In reality they get lower rents, but that's harder for them to see. And it's a problem of coordination -- as long as most other properties use brokers, you really don't have a reason to change.
The slow increase of no-fee listings has changed that. But it's still slow, and a lot of it is new buildings. It's hard to get landlords who have done things the same way for 40 years to change.
Just like the real estate agent business. Sellers have the option to sell it themselves, or use an agent. Agents do better and more organized marketing, handle the paperwork for the transaction, and offer help in prepping/staging the house. Etc.
When I rented my place in NYC some years ago, the broker fee was meaningful to me. Once I paid it, I was less likely to want to move since I'd have to pay it again vs renewing my existing lease which did not involve another broker fee.
There's a great Joel Spolsky comment[0] that explains why landlords use brokers. They perform work that would otherwise be done by the landlord.
The only reason landlords deal with them is that it's easier for them to do so, so why not. It's pervasive enough, as a quirk of history, that it's tolerated. They certainly do not provide value that matches up with their fees in most cases.
Rents may go up, but it will be only a fraction of the insane fees retail brokers in NY charge. It needs to change.
If you're from Germany, you have nothing to compare these people to, they run a racket that would be illegal there to begin with. They're nothing like the kind of rental agencies in Germany, they are individuals who basically figured out how to scalp entire buildings worth of apartments.
> they run a racket that would be illegal there to begin with.
Perhaps making it illegal in nyc as well, as op suggested, is the solution? Rather than letting a tech company replace the scalpers with a scalping monopoly
;)
In the mean time: software can solve this problem now. Now sounds good.
Software can displace a middle man, and replace it with a monopoly. Once monopoly power is in place, Software will then become more and more expensive until it is as bad or worse than what it supplanted. Investors will get rich, there will be a brief bubble where some people will get a VC-funded good deal, and then nobody else wins.
Because neither of those statements is exactly controversial.
Cutting out the middle man does not by definition lead to monopolies, especially not when the market has tens of thousands of sellers (if not orders of magnitude more), and tens of thousands of buyers (or, renters, in this case. And again, if not orders of magnitudes more).
It can't be quite this simple. If your renter is paying $X to you plus $Y to your broker, then their willingness to pay for the apartment was at least $X+Y, and you're leaving at least $Y on the table. In theory there should be a lot of market pressure to shrink Y. So the question becomes, what transaction costs are getting in the way of that? Or maybe, is the $Y actually buying something that's of value to the landlord?
How can that work? Landlord (absent regulation) set the rents as high as they want/can get away with. What's the difference between 100/month rent + 50/month broker fee, and 150/month rent + "zero"/month broker fee?
Of course, the real problem was that the landlords did not both to negotiate the brokers fee. There was a maximum broker fee defined by law, and everyone just charged the maximum. Not anymore!
"Now, I'm you're broker so if there are any problems throughout the lease, feel free to contact me. This isn't just a one time thing!"
We literally emailed/called him two weeks later and he ghosted us.
When we were moving out of our apartment when our lease was up, he was around showing another unit, introduced himself, asked us how long we lived there, etc
Previously it had seemed like nothing could get rid of them -- landlords mostly didn't care since it was mostly tenants who paid them in the end.
But COVID suddenly made everyone a bit more willing to consider other options (like virtual tours), and with some rents down landlords are perhaps a bit more willing to realize that if there's no broker's fee, tenants can pay a little more.
I'm actually really excited about this lockbox technology, I genuinely think it could be the key to "unlocking" competition again.
My only concern is that a lot of buildings don't have anything obvious in the front to lock it to, as well as plenty of buildings prohibiting tenants from storing keys in lockboxes in front, both because anyone can take a hammer to one and smash it to get the building key, and also because they don't trust it's not someone running an AirBNB.
[1] https://www.nytimes.com/2021/05/27/nyregion/broker-fees-real...
[2] https://www.timeout.com/newyork/news/you-will-still-have-to-...
While searching for my current apartment, I was month-to-month on my previous NYC lease and was therefore 1) not a complete noob to the city and 2) could be super picky and I kept getting the sense brokers had no patience for someone like me.
Many of the prospective tenants do not even find out about this until it is time to officially apply! Since there is usually a deadline to find an apartment, and most apartments will have (proportionally) the same exact fee, the "customer" is really a captive.
Ironically, the person you are replying to tried to actually be a customer with the agent, but since these people have no need to sell apartments (they will sell themselves in NYC and Boston), you're right - why bother? The real key is to become buddies with a few landlords, that's where to spend time.
Additionally, the landlords will often give first dibs to internal housing sites for local universities or to other current tenants to spread to their network. So it frequently doesn't even require posting on a public site, and in these cases the agent only becomes involved in the situation when it is time to fill out the rental app. This is especially common when people move for grad school or choose to stay after undergrad and want to live near their peers/friends. So you can imagine the sheer amount of money that gets collected for 0 return in Boston.
I'm not against real estate agent commissions in general obviously, but the way rental brokerage fees work is an absolute scam in parts of the US.
And yet, landlords keep using it. A $2500/month apt in NYC will cost $34,500 the first year -- but only $30,000 goes to the landlord. Can you help explain why a landlord would freely give up $4500 (standard 15% fee) in potential revenue?
For someone new to the market it is essentially a hidden fee you find out about at buy time. Since 90% of places do this it would be a huge hassle for a tenant to try to avoid the fee, especially with the pressures surrounding shopping for housing. It's not the same at all as changing a list price.
So, like Airbnb? Last I checked, that platform -- without a person -- also charges renters about 15% or more. And you don't even get to actually visit the place before you commit to paying the fee!
Before you try to argue that landlords wouldn't pay them if they didn't contribute - the landlord doesn't pay! In cities where the landlord has to pay, you will find agents are used much less often and charge cheaper prices for these sort of rental services. The problem is when the landlord chooses the agent but the tenant has to pay. Every agent just charges the max allowable fee, and the majority of landlords stick with this scheme, whether out of stubbornness, loyalty, or kickbacks I don't know - but it hurts tenants far more than landlords. Otherwise you are correct, landlords would stop using them unless their prices went down!
Let me know when a real estate agent makes their own website that gains traction across the city.
Many software companies fix the problem, disrupt rent-seekers with reduced costs, only to later become rent-seekers that have the market power to increase costs.
10 years ago I would have entertained owning rental properties. I'm so glad with todays climate I didn't go down that path!
We banned letting agent fees charged to the tenant. Miraculously, landlords didn't find paying £250 for a contract renewal value for money.
Rents continue to go up and down, but now tenants know they are spending money on their flat or house, rather than paying inflated fees to a letting agent/broker.
All fees are passed on to the consumer in some way, it is either a line item or hidden
The consumer price depends only on supply and demand. Fees don't influence none of it, only the cost of the selling party and thus his profit.
Thinking that labor costs do not impact product costs is grossly ignorant.
No one is arguing that labor cost doesn't impact product cost, but the fact is that in general it doesn't impact product price.
Or to put it the other way: can you imagine a business not increasing product price as much as they can, regardless of the product cost, as long as the supply is matched?
If they can increase the price, why would they wait for cost to rise before doing so?
The outcome is that business/landlord already charge as much as they can, and increased cost doesn't change the product price, since they already chareg as much as they can.
Sure not all prices are infinitely elastic, but if Labor costs out strip the ability to prices to absorb them that do not mean the business simply magically makes them go away, no that business goes bankrupt and wages go to $0.
Owners / Investors demand a return on investment, if the market average is 8%, and business x is only returning 4% why would an investor continue to keep their capital there?
Worse still if inflation is 3% and the business is only returning 2% the investor is LOSING MONEY by keeping their capital in the business, better to cut their losses and move on
This mythical position where by businesses just "absorb the cost" because the prices are not elastic is pure fantasy
What are you on about? Of course McD will change prices relative to input expenditure. You can even see this across all the countries they serve. If there were to be a significant impact on margin, they can increase prices.
All fees are passed onto customers, that’s how you calculate profit margins.
>All fees are passed onto customers
is not even close to correct.
All businesses will increase prices to maintain the profits they need, up until what the market will bear - which is why taxes will also not end up pushing it too far, the gov isn’t stupid.
This is disproved very easily by reality - most places have increasing rent YoY. Same goes for house prices.
Because of low supply and large demand, like you say, landlords can charge monopoly prices. Not sure why you claim they don’t go up?
All this proves is that evolving market conditions lead to changes in price. Try charging 2030's market-rate rent in 2021, and see how many offers you get.
you are simply wrong
If local regulatory conditions cause your labor cost to go up, they are absolutely allowed to (and will) raise prices to compensate.
Like, lets say that the government adds a 20$ tax/fee on fast food, per burger sold. Clearly McDonalds would no longer be able to sell burgers for 4 dollars.
Thus price would increase. Or supply of burgers would go down (thereby only leaving higher priced burgers in the market).
But that’s just the “efficient market” part of this. A fee like this could very well be an inefficient rent-capture that has managed to make its removal more expensive in the short-term than the short-term cost of allowing it to remain. Said less charitably, it’s a racket.
I would have thought that on HN of all places, where so many folks are attempting “disruption” (ie finding these unnecessary market inefficiencies and stepping around their cultural/legal/systemic barriers in order to reap some of the otherwise captured value), this would be better understood.
Overhead is overhead. Trying to pretty it up with fancy language like "moving wealth around" and "changing captured value" doesn't alter the fundamental economics.
Brokers should be a niche service at best.
And the broker they used basically does all the listings in the condo complex, so he has a steady flow of interested and vetted renters as well as standard leases that cover the specifics of the condo complex, as well as a relationship with the management office to get the renters approved quickly and get them keys for amenities and such.
In our case we pay the broker, but I can see a lot of value in their services for the landlord.
Do they have to have their own fulltime electrician on staff or are they allowed to contract it out? Why the insistence that the work be done by their own employees instead of contractors?
The broker is an independent third party to whom you pay a fixed fee, and have no extra cost or regulatory liability beyond that. A no brainer