What Everyone Gets Terribly Wrong About "No-Fee" Apartments

What Everyone Gets Terribly Wrong About "No-Fee" Apartments

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Billy Domineau
Oct 27, 2018
(Image credit: Rawpixel.com/Shutterstock)

There are generally three categories of agents who list and show apartments: brokers to whom renters pay a fee, no-fee brokers, and apartment owners who take care of the job themselves. You probably know that the best deals are usually found in owner-listed situations. Since there's no broker to middleman the process and demand tribute, both owner and renter can save money. Of course, if you're renting in any major city with a competitive market, odds are you'll end up having no choice but to work with a broker. In that case, a no-fee broker sounds like the better deal, right? Too bad there's no such thing.

In New York and Boston (and some other places, too) you can expect to pay anywhere between 8 and 15 percent of your yearly rent to the broker who helped you secure the apartment. To put that into perspective, 8 percent is equal to roughly one month's rent. So, for a hypothetical $2,500 unit, that could cost as much as $4,500. Ouch.

And who wants to pay an extra $4,500? Most likely no one—so you'll probably try to find a similar unit with a no-fee broker. But here's the thing: Even if you can find the same unit with a no-fee broker, your rent will be at least $2,750 a month.

I know this because I used to work as an agent at a no-fee brokerage. Obviously, I didn't work for free. My paycheck came from the money landlords would give us after renters signed, usually one month's rent.

But landlords aren't just giving this money away. To offset the cost, they simply amortize the fee into a higher rent. So, if you rent a no-fee apartment for $2,500 a month, you've essentially got a $2,300 unit with an extra monthly fee of $200. This extra fee can become even greater when working with no-fee brokers that charge landlords 10 to 15 percent.

Over the course of a year-long lease, the fee vs. no-fee broker question is pretty much a wash. And yes, no-fee has the very real advantage of not forcing you to produce even more money upfront. BUT once you're past that first year, the extra cost of going no-fee reveals itself. When you renew your lease on that $2,750 no-fee unit, you're going to continue paying the higher, fee-compensating rent (on top of any rent hikes), while a renter who paid a fee will now be taking advantage of their lower rent. This is why so many landlords love no-fee arrangements—they make more money after year one and the higher on-paper rents give them more leverage to secure financing for future projects. When you rent no-fee, you're setting yourself up to get long-term screwed.

So, let's say you find that perfect apartment that you know you're going to settle down in and make yours for life (or at least a couple years), but it's only being listed by no-fee brokers. Don't despair! Ask the broker if the landlord would be willing to reduce the rent in exchange for you paying the fee. You might be able to negotiate the price all the way down to the "true" rent, and even if you have to meet somewhere in the middle, you'll still give yourself a chance to save big every year you renew the lease.

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