The Easy Way or The Hard Way

(Common misconceptions in today’s manhattan rental market)

TOO MANY PEOPLE have misconceptions about how the real estate rental market is, which causes them to run around a lot before figuring it out the hard way. The one consistent example of this is how much people assume they can get for their money, until seeing enough apartments to really get the picture, thus eventually seeing the reality of it. That example will always be a constant, but in a market that now favors renters a lot more than it used to, there are a lot more of these misconceptions that people hear or create. The more time it takes renters to see the reality of it, the more time they will waste running around and the more they will miss out on great deals that don’t wait around.

MISCONCEPTION #1: “I SHOULDN’T HAVE TO PAY A BROKER FEE IN THIS MARKET!”

FIRST OF ALL… Keep in mind that the real estate market in Manhattan is owned by brokers. Pretty much everything you see online (even if it says “by owner”) is probably a broker! (Scumbags!) Brokers are all over every single landlord, building, super, etc… and they get listings before anyone else. They also have relationships with landlords, management companies, owners, etc. Even if it is a place where you can apply directly, by the time you find the apartment, find out how to apply, what paperwork you need, and make the decision, a broker most likely will already have a qualified client who is ready to sign leases and beat you out every time.

THAT SAID… a “No Fee” apartment ad usually means that the owner will pay the broker who rents the apartment to the tenant. But why do you think they are doing this now? Landlords who have too much vacancy in their portfolio have a choice. Either continue lowering their prices or pay an incentive. If they keep lowering prices, the current tenants will see this and want their rents discounted as well and their entire rent roll will go down, which is happening already. They can avoid this a little by offering a free month to the tenant or to pay the broker who rents the apartment. However, this depends on the building and the location. If you are looking for a great pre-war apartment in the west village for $2000, it will rent within a week, so the landlords aren’t going to pay the broker and enough tenants are willing to pay the fee. The price the prior tenant was paying would probably have been around $2500 or so anyway and west village lovers realize this is already a great deal. However, if this is an apartment in the financial district, the landlord will probably have to offer 3 months rent and to pay the broker fee, because these apartments are a dime a dozen and who really wants to live in the freakin’ financial district anyway? Some landlords will offer either free rent OR to pay the broker. Some will say, “collect a fee from the tenant and the rent is $1950, or we will pay the broker incentive and the tenant can pay $2200 (not an exact calculation)”

THE POINT?… If the landlord pays the fee, your rent will most likely be higher anyway! There was a building on the upper west that would lower the rent for 2 years to the tenant and amortize the rent down a few hundred or pay the broker. The tenant did the calculation over 2 years and it was actually cheaper to pay the full broker fee! If you only want No Fee apartments, you may be crossing out a whole bunch of great deals!! Keep an open mind and calculate everything before making a decision. If you want a unique apartment in a hot area, it’s not the best idea to rule out these apartments. Especially if you are going to stay for multiple years. If you want a cookie-cutter high-rise, most are no-fee anyway, so it doesn’t matter much!

MISCONCEPTION #2: “I CAN NEGOTIATE ANYTHING DOWN IN THIS MARKET”

WOAH! PUMP THE BREAKS! Here’s a quick history lesson: In 2008 as the vacancy rate rose, landlords started making adjustments. At the beginning of 2009 prices started to drop and landlords started negotiating with current tenants as well and new ones. Brokers were able to negotiate unheard of deals such as bringing the price down, pushing the move in date forward, and collecting a fee from the owner. Again… this was previously unheard of! After a few months of this and as the summer approached, overall prices really came down a lot, landlords were negotiating less, and many incentives started to disappear. Now that the market has been like this for a year, prices are already down in most cases. I just saw someone apply for an apartment that was $1950 and offered $1900. The landlord said “NO!” and it went for $1950. I saw another one where the landlord offered free rent taking the apartment from $2600 down to $2400 and when the tenant asked for another $50, the landlord said, “Listen, we just got 15 applications today on apartments in this building. You can have it for $2400 or we’ll give it to the next applicant!” The tenant took it for the already ridiculous price of $2400.

THE POINT?… Landlords & Management Companies in Manhattan know what they are doing! Their whole mission is to keep their apartments filled with tenants! Whether they offer incentives such as paying the broker or free rent, amortizing the free rent to give you a net effective rent payment, or just plain keeping the prices at rock bottom, the landlords are savvy and know how to move their inventory. A good broker (yes, there are a few) knows which landlords negotiate further and which do not. There are some who price apartment higher and make you negotiate down, but you don’t know which ones and while you try and figure it out, someone else will swoop in and steal your dream home!

MISCONCEPTION #3:  “I LIKE MY CURRENT PLACE, BUT I’M GOING TO MOVE TO A LARGER APARTMENT, IN A BETTER NEIGHBORHOOD, AND PAY LESS MONEY!!!”

HMMM… Well, this could be true ONLY if you are still paying 2006 prices and your landlord won’t negotiate down to current market prices for you, but that’s kind of rare! If you have a great apartment for a great price, STAY WHERE YOU ARE!!! The prices are great right now, but it’s still Manhattan and most people with this misconception will run around trying to beat their current place and when they finally find something that comes close, the calculation won’t make sense! I mean, this is your home! It means something to you already. When you run around seeing 20 apartments and realize that with all the effort it takes to move, the expenses, and that you will end up paying the same rent anyway, you will probably end up staying where you are in the end. That’s before even mentioning that the hottest apartments still have broker fees and that will end up throwing your calculations off. If you like your current apartment, stay where you are. If you are looking to move however, now IS the time. But only start your search if you really want to move. If you like your current place and aren’t getting ripped off, just stay and save yourself a lot of running around for nothing.

SO WHAT HAVE WE LEARNED? WHAT’S THE POINT TO ALL THIS? TELL ME?

Well… the point is: before just assuming a bunch of things based on what you’ve heard, what people tell you, and random thoughts that go in and out of your head… talk to a really great real estate agent about the market and let them help you set an appropriate game plan to help you find your next home in the least amount of time and with the least amount of effort.

BUT DO GOOD REAL ESTATE BROKERS/AGENTS EXIST? Well… that IS actually a challenge. Most of these idiots just got a license because they lost their job or couldn’t find one in the first place and someone told them, “Go into real estate. You could make a lot of money doing that!” I’ve been in sales for 16 years and most salespeople (let alone real estate salespeople) are just plain awful. It’s not that they all have bad intentions. It’s that sales is a very difficult career and people resort to doing whatever they can to make money, rather than helping people the best that they can. Especially 100% commission based sales! They struggle to compete, so they write fake ads, persuade you to make decisions that benefit them instead of you, and come from a place of dishonesty to make a living doing something they shouldn’t be doing. You need to find an agent who is a career salesperson who knows the market and wants to help you make the decision that’s right for you, while not thinking of the commission. Some of my best client’s ever were ones that I made the least money helping. My favorite clients and most satisfying deals were inexpensive or rent stabilized apartments, under $2000! They appreciate me the most and it makes me feel good to save people money in this expensive city!

So give me a call if you want to chat. Even if you end up staying where you are, I’d love to help you make the right decision and save a lot of time running around!

Scott Rubin this is my manhattan (212) 775-6127