Let's do some simple math to show how brokers in NYC are raking in disproportionate amounts of cash, at the expense of tenants and landlords. I will explain why the economics of this market is very broken, & if there were any industry ripe for disruption, this would be it.

The numbers:

Avg apt rental in NYC = $4,000/mo or $48,000/yr. source: Elliman, 2014.

Broker fee ranges from 1 month rent to 15% of full year = $4,000-$7,200 (paid by renter)

Time to photograph: 1 hr

Time to list on Zillow / Craigslist: 1 hr

Time to show to 9 prospects: 3 hrs (20 mins per showing)

Time to process paperwork (lease + credit check): 1 hour

Total hours invested: 6

Total earned per hour @ 12% commission: $6912/6 = $1,152.00.

Now you may say that any renter that chooses to use a broker is doing so as a luxury, as there are many no-fee buildings / listings on the market. Not necessarily so. If a desired unit is in a condo/coop vs. a rental building, it is often held by broker, & paying the fee is required to get in the door. Remember that in NYC, renter pays the commission. The owner is often inclined to hire a broker as it appears as if the work to rent it is done at no cost to him/her. However, renters will look at the total cost of rent + brokerage fees, when making a decision, just as shoppers look at the cost of item + s&h + tax when making a purchasing decision. If the owner were to list it themselves, or hire someone at $X/hr, it will likely yield a higher rent since the renter does not have to incur the expense of the broker. Back to the "no-fee" scenario. These landlords know that since the renter is saving the broker fee, that savings, or some portion of it can be baked into the rent. Similar to how free s&h is often not really 'free', as it inflates the total cost of the goods sold.

My argument is that a better model is to compensate the agent hourly vs. commission. Even at a handsome $50-$100/hr for the labor, it would result in higher rent for landlord, lower rent for the renter, & a healthy profit for the agent.

Make sense? Is there something I am missing? Let's discuss.

user:	neuen
created:	March 30, 2008
karma:	8
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