Real Estate questions I get asked at inopportune times

So how does your commission work?

^Me, being dragged into a unsolicited work conversation.

I am not the best person on a plane rides. I have a lot of energy and a dangerously active imagination, which basically is a stage 5 hurricane of a disaster anytime I’m in a flying aircraft, with a group of strangers, confined to a small chair. Growing up, my parents would pack a separate bag with dozens of things for me to do in hopes I could entertain myself for as long as the flight took. As an adult, I can’t bring an arts n’ crafts suitcase with me because that’s a red flag if I’ve ever seen one (and you need scissors to make gimp gecko key chains, duh) and I’m not about to self-administer a horse tranquilizer. Once on the plane, I eat all of my food in the first 15 minutes in a panic…the next hour I read and get bored of everything I brought..things spiral quickly as I begin staring at people and planning my escape route if things go sour…the last stage is me questioning the physics behind flying, what’s under my feet and then things go dark. For all the aforementioned and obvious reasons, I avoid all human interaction on planes. Well, I was flying recently, was in my first hour of “Feigning Productivity” and had a “Town Residential” notepad out. This lady next to me decided to be chatty and pointed at my notebook, “Oooo, are you in Real Estate in New York? I love Million Dollar Listing.” I couldn’t be snarky because she looked like the Old Lady from Titanic so I swallowed my RBF and nodded with a half smile, “Not at that level yet, but more like a D list version, with a splash of Punk’d, some Broad City and your occasional Hoarders.” She looked at me like I was speaking German so that joke was lost. She followed up with, “So how exactly do you make money?”

And here goes the conversation that will never end…

Instead of giving you the version that takes two VHS cassettes to explain, here’s the summery. So the “broker’s commission” concept is something I guess people aren’t particular privy to. It’s always awkward to ask somehow about their salary, I completely understand that, so to clear the air for anyone looking to use/go through a broker for renting, selling or purchasing, we’ll do a quick 101 on how compensation works. First off the bat, all real estate professionals are commission only. We don’t get any benefits (so that lovely thing called health insurance comes out of pocket) and we only get paid when a deal closes, which we then split with our brokerage and later down the line, we pay taxes on. There are no salaries and no bonuses.

Renting

I explain this one about 5 times a day so reciting the below is like reading a bedtime story. The normal rental commission in New York City is 15% of the yearly rent. That is the standard because in the event a broker brings you to a property as your representation (meaning their fiduciary duty is to you) and that property is represented by a listing broker (meaning their fiduciary duty is to the landlord), the broker fee is a nonnegotiable 15% of the yearly rent. That commission is split 7.5/7.5 to each broker, as that is the lowest fee amount most brokerages will allow agents to file. In the event you do not have representation and approach a listing that has a listing broker (example: Kristina and I on our rental exclusive in Gramercy Park), the broker will still charge a full 15% in the heat of summer rental season. If a listing has been on the market for a long period of time, it is vacant or it’s off peak season, many brokers can speak with their managers about lowering the percent to a corporate/referral rate in order to move the listing. In the event you have representation and your broker brings you directly to a management company, that is not listing their property with a brokerage, often the broker will (or should) charge you less than the 15% standard. This is mainly because these management companies have found a way to amortize a “broker fee” into their monthly rent since people are psychologically more apt to pay a bit more each month than stomach a large down payment. When choosing a broker, it’s imperative that they are clear with you about broker fees for the listings you view, as no one wants surprises at the end of the day. More often than not, the 15% is nonnegotiable, however with most co-broke situations, you should expect a lower rent with a smaller (more human) landlord than if you were to go directly to a no fee management company.

Buying

Seller pays the commission. That was easy.

*in very rare instances, the seller will not pay commission…but again, very rare.

Selling

The commission for both your listing agent and the buyer’s agent rests on you. The commission tends to fluctuate between 5-6% of the purchase price, as 5% is the lowest most brokerages will allow. If a direct customer comes to the seller’s agent, the seller will collect the commission in full. If a buyer is represented by an agent, the seller’s agent and the buyer’s agent will split the commission 2.5%/2.5% or 3%/3%.