Rental Brokers in NYC and the commoditization of Real Estate
Last week, New York State regulators issued “guidance” that essentially forbids rental brokers in NYC from charging tenants a commission for their services. While people are screaming bloody murder, they should also realize that, like almost every other fact of their lives, real estate has now become fully commoditized, and a law like this was inevitable. We must deal with reality and adapt.
A summary of what we know about this regulations so far:
- The recently issued “guidance” is not compulsory and it is not law, as of yet.
- Rental agents that represent landlords can still charge those landlords a 15% commission for putting together a transaction; they just can’t pass that 15% onto the tenant. The Landlord would have to pay someone for helping to rent his/her place (just like a Seller would pay his/her agent for selling his/her place.) It’s really about who cuts the check (yes, rent may get more expensive as a result.)
- A prospective tenant can still compensate their own broker for finding them a place, should they choose to.
Opponents of the new proposed regulations galvanized, seemingly overnight, and filed suit, accusing the State of abusing it’s authority. Others of course saw an opportunity to play the “I told you about the libs” card and blame a “wild, left wing” administration (even though this was the Department of State that did this). Every brokerage firm collectively screamed Armageddon. Still others wrote thoughtful op-eds in the Times, which intimated that the business that allowed them to live in the City (in the still affordable turn of the Century) would be unrecognizable, and would likely cause them to shut down.
All of this misses two important points:
- Absolutely no one knows what happens in the future, and our initial reactions to things are almost always incorrect, especially when their fed by emotion.
- Real Estate is a commodity. That means real estate agents are commodities. That means that real estate attorneys (myself included) are commodities. That means that title insurance companies, appraisers, surveyors, loan officers, landscapers, managing agents, and everyone else in the world of real estate are commodities. It’s time we get used to this.
I sympathize with the tens of thousands of real estate brokers in the City whose name do not rhyme with Schyman Schmerhant. I understand that many, if not most, do not make 6 figures, as they try to survive and feed their families in a City that eats you alive and cares not about who you think you are. Sympathy and emotion, while cathartic, do nothing to help one prepare for the objective reality of this new world: For consumers, “How much?” for many, will be the paramount question. For the government, “Protecting the consumer” will be the paramount, if not misdirected, objective.
We should also not be surprised by any of this. We, all of us, are the blind consumers of Amazon and Netflix and Uber and Seamless and Zocdoc. We demand ease of use and “freemium” models, and the lowest price possible if we do pay and we have zero allegiance to any one brand (unless that brand is sustainable, but only if the “eco-sustainable” brand also provides the convenience we need at a price we are willing to pay.) We haggle at car dealerships and with cable and cell phone providers and with nannies and with customer service agents, so we should not be surprised someone asks for a reduced commission, or that our own clients (Landlords) should have to pay us separately for the work we do. We should similarly not be surprised that, as the government sees real estate services as having more in common with Uber or Amazon than your local mom and pop, they will regulate it more and more.
Approximately 2-3 times a week, I receive an email; a referral from one broker or another that I’ve worked with. It’s almost always a first time client, writing, of course, on the go: “Hi, was sent your name by Marc. What’s your fee for a closing? Thanks.” Never mind that I am the one person that could ensure their most important purchase in their entire lives goes smoothly or not. Never mind that they’re likely spending millions of dollars on this. Never mind they haven’t the faintest idea what to look for. Never mind that they’ve no idea what, if anything, my experience level is, or whether or not I can spell, or whether or not I am available. Their sole question is: “How much do you charge?” because that is what I am to some. I am a very well educated, living, breathing, commodity. Years and years ago this bothered me, as I would lose deals over a difference of $150 between myself and my competitor. Now, not a second thought. There will always be clients who not only don’t know how good you are (or aren’t) but don’t care. They simply want a range of prices and then they’ll just kind of wing it. There are, thankfully, others that do care, and for whom I work diligently, knowing they respect my work and what I charge for it. Thus far there are more of the latter than there are of the former, but the future is anyone’s guess.
Why does this matter? It matters because this is the way business is done these days. Not with handshakes and meetings and objectives and goals, but with a flurry of emails and texts and races to answer 9 pm phone calls. It has, for the most part, become impersonal, faceless, and empty. This is why the 6% sales commission is quickly disappearing. It has gone the way of the Dodo bird. People are battling it out over 4% and I assure you we’re a few years away from 3%. This is, rightly or not, because fellow brokers want the business and they will charge less, and the market wants less, and so the number, with exceptions, continues to go down. It is neither right nor wrong-it just is.
There are, no doubt, a large contingent of real estate agents in New York City who will get clients to pay their well deserved fee. Landlords will find renters quickly thanks to experienced agents and they will be happy and pay those agents (I know many of them, and they’re worth more than 15%). Renters will find apartments that they’ll live in for years and happily compensate their agents so that they don’t have to scour StreetEasy and Craiglist for hours. Time is money. And yet there will be other agents who will walk away from real estate because it doesn’t make sense anymore (just like so many attorneys I know who have walked away because they no longer felt their experience was respected.) Because it won’t be worth the hassle and because they could make more money doing other things and not having to answer “Can you do 4% emails?” on a Sunday afternoon when they’re with their kids.
None of this is to say that these proposed regulations are correct, or even remotely necessary, but rather that they are, in a long term sense, besides the point. Real Estate will survive and the market will change, as it always has, and as it always will. A decade ago there were a few kingmakers and now there are more storylines and infighting than a Game of Thrones marathon. The argument over who should pay the sacrosanct 15% misses the point of what is happening all around us: The world is changing very, very fast. Instead of trying to stop regulations, and argue about their arbitrariness, or their supposed indifference, we need to instead accept it and adapt in whichever way we can. The best firms and people in the industry are already doing that; not because they want to, but because they simply don’t have a choice.