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Demystifying fee vs. no-fee apartments: a closer look into how it actually works
by Red Delicious on March 11, 2010
Many renters are still confused about the truth behind fee versus no-fee rentals. Let’s break it down into all of the different fee scenarios, with the basic understanding that the agent fee is always paid in some way, shape, or form (no, we don’t work for free):
* The “no-fee” rental: really a misnomer, this refers to the situation in which the landlord is paying the broker fee. This could be the case for many reasons: excess inventory, over-priced apartments, a desire to move the apartment as quickly as possible, or needing to keep rents higher on the bank books. Whatever the reason, the landlord believes s(he) must incentivize tenants and their agents to view and rent the said property; the easiest way to do that is to prevent the tenant from incurring the out-of-pocket expense of paying the fee. Rental price negotiability is lower than in other situations, as the landlord is already incurring out of pocket costs.
* The fee rental: this refers to those apartments where the landlord is not incentivizing the broker to show or rent the apartment. Often, fee apartments are therefore either in demand or unique, providing the landlord with enough confidence that they will rent without putting them “on sale” so to speak. Such apartments are either represented by a broker as “exclusives” or are “open listings”. The latter means that every agent receives the same compensation for renting the apartment (rather, whatever fee the renter and agent agree to), and that fee is paid by the renter. Rental price negotiability is likely greatest here.
* The co-broke: this is the situation in which one agent represents the landlord and another represents the tenant. Mostly, the fee is paid by the tenant and then split between the two agents. In this scenario, the fee itself is least negotiable as both agents are paid half their normal gains (which ends up being less than the one month generally paid by big landlords). Sometimes, owners pays their agents their half of the fee, such that the tenant’s agent has more wiggle room on negotiating their portion, making it less costly for the tenant.
Bottom line: the more concessions the landlord provides, the less wiggle room in the rental price. The best strategy is to set your rental budget NOT based on the fee/no-fee scenario, but the total absolute cost to you. It’s very common to find a fee apartment of similar quality but lower rent, that nets out (after including the fee) to the same rent as a no-fee apartment. PLUS, after the first year, you are paying that lower rent going forward for as long as you stay, rather than the higher rent with the “built-in” no-fee amount. In theory, the longer you are likely to live in the apartment, the better the deal that fee apartment will have become.
