[plondon514]

Broker fees are the biggest scam. I’m surprised that StreetEasy or another player like compass hasn’t been able to disrupt on this more. As a renter you basically do all the work to find an apartment and then shell out thousands to a broker who… lets you into the apartment for 5 minutes to see it

[mushufasa]

I think the Chesterton fence here is:

- there's more demand for good apartments than supply in NYC

- multifamily building owners outsource the process to brokers

- building owners can pay brokers less if brokers pass on overhead costs to renters

- brokers don't have leverage with building owners because the apartments sell themselves

- renters put up with this because there's more demand than supply

If you were here during the pandemic, when there was less demand than supply, you would have experienced a time when all those brokers' fees magically disappeared... and brokers were working harder than ever!

[reaperman]

The term "Chesterton's fence" implies there's a good chance that something will break in an unwanted way if you remove the brokers fees. I'm curious what would break for the other parties in the transaction.

"building owners can pay brokers less if brokers pass on overhead costs to renters" could just as easily be "owners could charge $10,000/year more in rent if brokers didn't capture it".

[cameldrv]

I'd summarize Chesterton's Fence as "do not destroy that which you do not understand." Human things that have been around a while almost always have some sort of purpose. That purpose could be something noble and important, or it could be some sort of kickback scheme. Figure out which one it is before you lead a protest against it.

[nickelpro]

Ya that's a silly explanation, the only relevant point is this:

The price charged by brokers to landlords is less than the perceived value of the labor required for the landlord to list the property, receive calls from interested renters, and show the property.

This isn't surprising because brokers charge next to nothing to the landlords because they make their money on the fees from renters.

Renters are forced to abide this situation because of the aforementioned mismatch in supply and demand.

Why does this market crop up in some cities but not others? It's hard to say, some claim it's rent control but buildings without rent control still have exorbitant broker's fees in NYC. However, this is hardly the only market niche that is cultural rather than dictated purely by market forces. Americans don't buy bidets, the Japanese still frequently prefer cash transactions to electronic payment, and San Franciscans don't charge brokers fees.

[reaperman]

> The price charged by brokers to landlords is less than the perceived value of the labor required for the landlord to list the property, receive calls from interested renters, and show the property.

There's no way this costs $10,000 ... the equivalent of 160 hours (a full month) of highly-paid labor. In a housing-constrained city where the landlords product sells itself.

[karaterobot]

> The term "Chesterton's fence" implies there's a good chance that something will break in an unwanted way if you remove the brokers fees. I'm curious what would break for the other parties in the transaction.

No, it's about making changes without knowing enough about what you're changing, and why it is the way it is. If we actually understand the reason for high broker's fees, there is no Chesterton's Fence. It seems like we do know the reason they're so high, and could move to address them with some confidence.

[thaumasiotes]

The reason it's going to the brokers is that the landlords are legally prohibited from charging higher rent.

It can't go to the customers for the obvious reason that the whole point of the system is to allocate a smaller number of apartments to a larger number of customers.

[1_1xdev1]

Legally prohibited? How?

Rent stabilized units are a small percentage of the NYC rental market (and change tenants much less frequently than the rest of the market)

Brokers seem to be able to capture the value just because they’re entrenched. Demand has outpaced supply, and landlords are happy to outsource the majority of the tenant search process.

Large apartment buildings with leasing offices capture the value you’re saying can’t be captured. There are tons of comparable “no fee” apartment buildings with a rent that’s 15% higher.

So — do you pay a 15% fee once, up front, and hope you don’t need to move? Or do you pay it on your rent?

Edit: ok the percentage of rent stabilized units in NYC is actually a good bit higher than I thought. But my second assertion still stands — they practically never change over. So it feels like they’re an impossibly small part of the market. You won’t find rent stabilized deals advertised.

[s1artibartfast]

>Demand has outpaced supply, and landlords are happy to outsource the majority of the tenant search process.

This is the part I simply cant fathom.

I am a landlord. Why would I ever be willing to fork over 10K to save a trivial amount of work. Do the brokers take on some sort of liability for tenants?

[sixo]

No, the brokers are extracting value from the excess demand. The landlords get what they want: not doing that part of the work, particularly showings as many landlords do not live nearby.

And the landlord, for a city of predominantly 2 yr-ish-long rentals, benefits from nominal rents being as low as possible--a well-priced apartment sells fast, a poorly priced one does not. (Compare to Ticketmaster and music venues.)

Then brokers extract as much as they can. But since a broker only gets the commission a fraction of the time they do the work (say 1/3), the competitive equilibrium for brokers fees is higher (say 3x)than it ought to be, bc the marginal addtl broker who would undercut them simply left the industry instead.

[tacticalturtle]

But why doesn’t this happen in a city like San Francisco that also has a constrained supply?

Many cities have this same fence - but only Boston and NYC have a culture of broker fees.

[danabrams]

Here's a theory...

Although illegal now, San Francisco used to have a widespread practice of "key money"--a bribe you paid the landlord to choose you to rent the apartment that due to rent control or other factor was priced below market demand.

Because the landlord was capturing the extra value directly, a cultural practice of high broker fees never developed there, while it did in the east, where bribes were less common. Thus someone other than the landlord captured the excess value.

It's also entirely possible that the broker's fee is being illegally passed as "key money" to the landlord in a way that's harder to detect/litigate in NYC because it's not direct from the tenant.

[SteveNuts]

I don't see how this broker system isn't literally rent-seeking. It seems like a totally useless middle-man scraping some cheddar off the transaction for no real value added.

[deegles]

I paid a broker fee and the day I was moving in the landlord told me it was a fee-free building.

[shoo]

Lucky you only had to pay the broker and not the building too.

Obligatory:

  “The door refused to open. It said, “Five cents, please.”
  He searched his pockets. No more coins; nothing. “I’ll pay you tomorrow,” he told the door. Again he tried the knob. Again it remained locked tight. “What I pay you,” he informed it, “is in the nature of a gratuity; I don’t have to pay you.”
  “I think otherwise,” the door said. “Look in the purchase contract you signed when you bought this conapt.”
  In his desk drawer he found the contract; since signing it he had found it necessary to refer to the document many times. Sure enough; payment to his door for opening and shutting constituted a mandatory fee. Not a tip.
  “You discover I’m right,” the door said. It sounded smug.
  From the drawer beside the sink Joe Chip got a stainless steel knife; with it he began systematically to unscrew the bolt assembly of his apt’s money-gulping door.
  “I’ll sue you,” the door said as the first screw fell out.
  Joe Chip said, “I’ve never been sued by a door. But I guess I can live through it.”

-- Philip K. Dick, Ubik

[reaperman]

In the past 1-2 decades we've seen so many things get hyper-monetized which used to be free - playing sports at the park, restrooms, cups of water with a meal, shopping carts that need a quarter to unlock. Ubik was written in 1969; I wonder what trends Philip K. Dick was exposed to between 1945-1969 which led to him imagining a dystopian world not too far beyond where we are today.

[yieldcrv]

Compass was disrupting it 10 years ago and then hired a bunch of brokers and seemingly realized how much they could make with the market inefficiency

[m-ee]

I think this was what compass originally intended to disrupt but then realized it was way more profitable to just make tools for real estate agents.

[iancmceachern]

The biggest scam