When you are looking for a new apartment, it is highly likely that you will find all sorts of offers that are meant to entice you into signing the lease. One of the offers you may come across are no fee rental units, which is meant to attract renters who intend to avoid footing the bill of the real estate agent who helped them find the apartment. Here is a breakdown of what you need to know about no fee apartments so that you can go about your search feeling informed and confident.
What is a no fee apartment? A no fee rental listing could either mean that the tenant is renting the apartment directly from the landlord without the help of a broker, or that the landlord is willing to cover the broker’s fee. Depending on your location, you will find that if you hire a real estate agent to help you find the ideal apartment, you may have to take care of the fee on their commission.
In cities such as New York, Chicago, and Boston, it is not uncommon for the tenant to pay the broker fees, which can cost up to an astonishing 15% of a year’s rent. As a result, in order to appeal to renters who don’t want to pay a costly broker’s fee, many websites advertising rental listings include “no fee” apartments.
While finding a no fee apartment may sound like a great way to save your hard earned cash and still get the apartment you desire, you are better off proceeding with a lot of caution. Here are some of the inquiries to keep in mind when trying to determine if a no fee apartment is the way to go.
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What exactly is a fee?
A fee, also known as a broker’s fee, is the amount that is paid to the broker when he/she helps you find an apartment. this fee can range anywhere from 8% of a whole year’s lease – which is basically one month’s rent – to 15% of a whole year’s lease. Although having to pay an amount equal to a month’s rent is less than appealing, don’t think that you have been shortchanged by your broker. In fact, the fee the broker receives is usually shared with their brokerage firm and anyone that was involved in the transaction.
In almost all the major cities of the U.S, it is the norm for the landlord to foot the bill for the broker’s fee. However, renters in New York, Boston, and Chicago are often required to take care of the broker’s fee. This is because the supply of desirable rental units in these cities is lower than the demand, so many renters have no choice but to pay due to the limited options.
When is an apartment “no fee”?
An apartment listing that is advertised as “no fee” doesn’t mean that the broker won’t receive his cut. There are two instances when an apartment is considered as having no fee.
- When you go directly to the landlord – If you succeed in finding a rental unit on your own and get to see it directly from the landlord/ property manager, usually by means of the leasing office, you won’t have to pay a fee. You only have to pay the fee when you seek the help of a real estate agent.
- When the landlord pays the fee – A landlord is usually willing to pay the broker’s fee only when they need the help of a broker to rent out the apartment. This is basically a marketing tactic so as to make a rental unit more desirable to prospective tenants in a rental market where the demand is higher than the supply.
What type of apartment building are you looking for?
If you intend to move into a larger complex that has multiple rental units, it is highly likely that you will find a considerable number of no fee apartments. This is because you can often rent apartments through the management company that runs the building without having to hire a real estate broker. However, if you are looking for a smaller apartment building in an area where tenants are expected to pay the broker’s fees, you might not succeed in finding a no fee rental unit. This is because a small building with just only a couple of apartments is more likely to be owned by a landlord rather than a management company, and a landlord is much more likely to rely on a broker to find prospective tenants on their behalf.
Are you familiar with the area?
If you are familiar with the area/city where you are hunting for an apartment and you have a clear idea of the type of building and neighborhood you want to live in, it might be reasonable to consider looking at no fee listings that don’t require the help of a real estate agent. However, if you have recently relocated to a new city or you just don’t have the time to look for an apartment on your own, you might be better off working with a broker- even if you have to pay a fee for the services. This is because searching for an apartment is a time-intensive process that involves trying to determine what neighborhood will suit you best, looking for the most fitting building, and scheduling appointments with property managers and/or landlords. Other reasons why it may be beneficial to seek the help of an expert include:
- Real estate agents are usually able to find apartments that you may not be able to access on your own.
- Professional brokers are generally well-versed when it comes to the local real estate market and are more familiar with long-term trends.
- If you are sure of exactly what you want in an apartment, you can inform a real estate agent so that they narrow down the search and find your dream home faster.
- Agents are helpful in giving you all the details of what you will need to get the apartment, including the financial information you will be required to provide and the process of application in general.
Do you really get to save money?
In concept, the motivation for opting to rent a no fee apartment is to save you money. However, in most case, the money that you are trying to save by not paying the broker’s fee is actually integrated into the cost of your monthly rent. To offset the cost of covering the broker’s fee, many landlords simply increase the rent. So, for example, if you move into a no-fee apartment that costs you $2,500 on a monthly basis, you may be paying an extra $200 monthly for a unit that costs $2,300 per month. This extra fee can potentially become higher if you work with a no-fee broker that charges the landlord 10-15%.
Without a doubt, a no fee arrangement has the advantage of not having to pay even more money upfront. However, once you have lived in the apartment for a full year, the extra cost of opting for a no-fee rental unit will reveal itself. When you renew the lease for your no fee rental, you will realize that you will have to keep paying a higher rental bill to compensate for the broker’s fee, while a tenant who paid a broker’s fee will now be enjoying a lower rental charge. This is why a lot of landlords have no qualms listing their rental units as no fee- they make more money after the first year, and the higher rents on paper allow them more leverage when it comes to securing financial backing for future projects.
Is there room for negotiation?
If you are set on moving into an apartment that requires a broker’s fee and you are sure you will settle down in and live for a couple of years (or a lifetime), you may have the chance to bring down the charge of the fee if you make an attempt at negotiations. If you are successful, you may be better off going for such an apartment rather than finding a no fee apartment. However, negotiations are quite risky especially in a competitive market, and you might end up completely losing the apartment. If you plan to initiate negotiations, you might have a better chance if you wait until you have a rapport with the broker and are almost securing the rental unit.
Where can you find a no-fee apartment?
There are a couple of ways through which you can find an apartment without the help of a broker.
- Online searches – A majority of sites that list real estate properties provide a no fee apartment filter, allowing you to exclusively search for apartments where you don’t have to pay the broker fee upfront.
- Ask family, friends, and co-workers – Another option is inquiring from family and friends on where to look. Don’t hesitate to use your social media platforms (Twitter, Facebook, and Instagram) to reach an even wider audience.
- Field research – For a more hands-on approach, you can explore various neighborhoods and look for vacancies. In some cases, you may find contact information for a management company or a landlord in the lobbies of a building you are considering.
Opting to go for a no-fee apartment is beneficial in helping you avoid having to pay more money upfront in addition to hefty costs such as the security deposit and first month’s rent. However, in cases where the landlord is covering the broker’s fee, you may end up paying even more than someone who opted to pay the fee upfront. All in all, it may serve you well to expand your search and take into consideration both no-fee and fee options.