Property Grunt

Monday, September 01, 2008

The End

Recently received a disconcerting email from a reader regarding the rental broker profession in New York City that I would like to share with all of you.

Is there a future in being a rental Broker?

I was just wondering what’s your opinion on the subject , since owners are going thorough hard times and with a lot of time on their hands so they are advertising the very same apartments for free, that brokers are trying to earn a fee ,

what I see is happening more and more that renters and owners are just abusing the brokers time to show them around ,then searching on craigslist for the owners ad and skipping the broker,

Does this mean the end for rental brokers to earn a decent living?

My response.

It's funny you mention this. I had actually touched upon this subject 3 years ago on my entry on outsourcing rental brokers.

I think what you have touched in regarding landlords advertising apartments is quite significant. In these desperate times, landlords realize that a broker presents a barrier of entry for prospective tenants because the additional broker fee presents an added cost to an already burdened customer.

However, that does not mean that all rental brokers are completely screwed. Here is an example.

I knew one particular broker who focused on downtown lofts. These were unique properties that were not openly advertised. These were high end residences which only a specific type of clientèle could afford. These particular types of clients could easily pay the fee let alone the rent. This particular broker established a reputation of being able to bring these types of tenants to the loft owners that these landlords were more than happy to give this broker their business and ultimately relied on him to bring in tenants. How is he doing now? Hard to say considering that the majority of his clients were Wall Streeters and we know how that movie ended.

Is there a future for rental brokers? The odds look bad. However if the rental broker is smart and figures out the right strategy, they should be able to at least survive the downturn.

I would also like to add to my response to a question that the Hunt Grunt posed to me regarding how a broker fee can become a barrier of entry.

The fee was $2,000, Mosaic’s minimum, even though it usually charges 15 percent of a year’s rent ($1,395 in this case). So few low-end rentals are available that typically “you’ve got to get creative in finding the apartment or making the deal happen with the landlord,” said Brian Dusseau, a manager at Mosaic Properties. Also, “if people can afford to pay our fee, we know they can afford to pay that rent every month,” he said.

PGrunt writes:

I have experienced the flipside which is that the client has only enough money to pay for the 3 months of rent to hold onto an apartment.
I asked Grunt to expound further. He noted that the renter has a high upfront cost -- rent, security deposit, fee -- which can be several thousand dollars. Furthermore:

If a client can pay the fee, they should, theoretically, be good to go to pay the rent. But if you are dealing with a client who is strapped for cash, then you have a catch-22 where they have only enough money for one or the other but not both.

Even after the market recovers, I think that landlords and property management companies will still maintain this new model of advertising and processing rental applications on their own because it will be more quicker and efficient to do so. And there will be more companies like On site Manager that will provide these types of services at a fraction of the cost a rental broker.