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What Does No Fee Mean?

September 7th, 2010 : The Naked Apartments Team

No fee means the landlord pays the broker's fee

“No Fee!” That one little phrase makes every renter so excited, but why are only some apartments no fee? And why are the best apartments never advertised as no-fee? As a renter looking for your next apartment, you should understand the answers to these two questions.

What’s a fee?

A fee is the dollar amount owed to a broker when they help you find an apartment.  ‘Fee’ is the one word abbreviation for ‘Broker Fee.’ Fees are how brokers earn their living.  It’s the dollar incentive for a broker to help you find your next apartment.   The fee can range from 8% of the full year’s lease to 15% of the full year’s lease.  (8% is the same as one month’s rent.  One month = 8% of the year.   1÷12 = 8%.)  Don’t think that your broker is getting that much though.  The total  fee is split between them, their brokerage firm, and anyone else involved in the transaction.

Does no-fee imply there’s no money in it for the broker?

When a broker helps find your apartment, there’s always a fee owed to them; it’s just a question of who pays it. If the landlord pays the fee, the apartment is advertised as no-fee.  If the landlord does not pay the fee, the apartment is advertised as requiring a fee.  But… if you find an apartment without a broker’s help, and go straight to the landlord, there is no fee. No broker, no broker’s fee.

When will the landlord pay the fee on my behalf?

A landlord will only pay a fee if she/he needs help finding a tenant. It’s Marketing 101 – when you need help selling a product, advertise a promotion, a discount, a coupon, a give-away.   And that’s what no-fee is: it’s an advertised give-away.

With a no-fee apartment the landlord is saying to all brokers,  “tell renters that if they rent my apartment, I’ll pay the broker’s fee for them.”

Every month that an apartment goes unoccupied the landlord is essentially losing money.  Assuming the average rent in Manhattan is $3,400, an empty Manhattan apartment will cost a landlord $3,400 per month.   If that apartment sits on the market for 6 months, that’s a loss of $20,400… ouch.  Now, when a broker helps out and finds a tenant, the landlord no longer loses money, hence, the financial incentive of a landlord to pay the fee on your behalf.  The landlord would rather pay the broker’s fee for you, than risk losing another 2 months of that apartment going unoccupied.  Again, by advertising an apartment as no-fee, it becomes more attractive to renters and more likely to get rented.

When do I pay the fee?

If an apartment does not need a broker’s help to get rented, a landlord won’t pay their fee on your behalf. That’s the basic reason why you rarely see a great apartment advertised as no-fee.  For a great apartment, renters are willing to pay the fee themselves, which means the landlord doesn’t need to.  The logic being, if you don’t rent the unit, someone else soon will.  Back to marketing 101 – when something will sell right away, there’s no need for a promotion; instead, maximize your revenue.  For this reason, when the NYC economy is soaring and there’s huge demand to move into the city, the number of no fee apartments will drop.  And vice versa, when the NYC economy is tanking and renters want to move out, the number of no-fee apartments will increase.

Be smart: don’t limit your search to no-fee only.

If you’re the type of renter that only searches Naked Apartments by using our advanced search option ‘no fee,’ you could be missing out.  You could find a great apartment that, even when including the fee, is a great deal when compared to all no-fee apartments.  But if you want to ignore our advice altogether (who could blame you,) we’ve created a page of no fee apartments in Brooklyn.  And we’ve done the same for no fee apartments in Manhattan.  And, here’s how you can adjust your max rent to account for a fee.  You’ll expand your search, while not spending a penny more than you would on a no-fee apartment.

To Recap:

  1. Fees (aka ‘broker fees’) are what drives a broker to help you, because when you sign a new lease, they make money.
  2. A fee is only owed when you use a broker.  When you rent directly from a landlord, there’s no fee.
  3. If the landlord pays the fee, the apartment is advertised as no-fee.
  4. If you pay the fee, the apartment is advertised as requiring a fee.
  5. Great deals often require you to pay a fee.  Don’t limit your search to no-fee only.
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