Are NYC sellers paying smaller commissions to buyer’s brokers?
- REBNY broker fees were ‘decoupled’ in January but response has been muted
- Brokers say most sellers still offer full buy-side fees with a few exceptions
Even though they are separate trade organizations, headlines about NAR’s $418 million settlement helped raise awareness among NYC buyers and sellers about the change in how REBNY brokers are compensated.
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I'm looking to buy an apartment this year and I want to know how the separation of broker fees is playing out. Are NYC sellers still paying full, buy-side broker commissions, or have they changed their behavior?
When it comes to broker fee behavior in New York City, the majority of sellers—but not all—appear to be continuing to offer a full 3 percent commission to buyer’s brokers, according to our experts.
Commissions for brokers who are members of the Real Estate Board of New York were officially “decoupled” as per new rules that went into effect January 1st. Instead of a seller paying a 5 or 6 percent fee that would then be split between the seller’s and buyer’s brokers, a seller now will agree to one fee for their broker and a separate fee for the buyer’s broker.
The move coincided with major anti-trust cases involving the National Association of Realtors (NAR) shaking up courtrooms around the U.S. but was not an outcome of those cases, although REBNY was party to a separate broker fee lawsuit. REBNY is the dominant real estate trade group in NYC and most brokers here are not members of NAR.
When buyers have to chip in
Your question likely stems from the concern that sellers are more aware of their ability to pay a smaller commission to the buyer’s broker, or even nothing at all. In that case, a buy-side broker could turn to the buyer to make up the difference.
There were expectations that sellers would seize the opportunity to get a discount on broker fees, but brokers told Brick the situation is mostly status quo, at least for now. Situations in which buyers are being asked to contribute to a buy-side broker fee are occurring but they are rare.
Douglas Wagner, director of brokerage services at BOND New York, said this scenario is something he’s seen in a couple of deals in far reaches of the outer boroughs, but not in Manhattan or other prime parts of the city. It’s not a new situation either, he said.
“It’s customary for sellers to pay the buy-side a little less when the deal involves a house in Canarsie,” Wagner said, as an example. A house doesn’t require a buyer to jump through hoops in the same way as a co-op or condo.
What does a buyer’s broker do?
If you’re buying in a co-op building (and some condos), you’ll need to prepare a board package and pass a board interview—and this is where you benefit from an experienced buyer’s broker who can guide you through the process. It is in a seller’s interest to choose a buyer who meets a co-op’s financial requirements.
Sellers understand that buyer’s brokers need to be compensated for their work, Wagner said.
“I have had some sellers ask if we can pay the buyer’s broker a little less but most sellers we work with are sophisticated. We worked out a commission that everyone could agree to,” Wagner said.
“A respectable offer to the buy-side helps with traffic,” he added.
‘The wise thing to do’
From her perspective, “sellers are paying both buyer’s and seller’s agents,” said Deanna Kory, broker at Corcoran. “I think it’s the wise thing to do because it provides an incentive to the broker who brings the buyer.”
Even though REBNY’s new rules state that a buyer’s broker can ask the buyer to make up the difference for a smaller commission, Kory said that “old habits are difficult to change.
“Agents are very uncomfortable to ask a buyer to pay the commission if the seller is not paying,” she said.
You can include the broker fee in your offer…
As a buyer should be aware that the buy-side broker fee can be part of your negotiating strategy.
Jennifer Carey, a broker and director of sales for REAL New York, runs a team of 20 sales agents. She says she is not seeing big changes in how sellers compensate listing and buyer agents.
But an agent on her team was working with a buyer who had their eye on a Cobble Hill listing where the seller was offering a 1 percent fee to the buyer’s agent, an unusual arrangement for this in-demand destination.
With the buyer’s permission, the agent made an offer for the property with a request to come up to a 2 percent buyer commission. The seller agreed, however, the deal didn’t go through due to problems with the building’s financials.
…but don’t let the broker fee derail the deal
Carey says her advice to agents negotiating broker fees is: “If you’re going to make a request to increase your fee, you don’t want to get in the way of the deal.”
Case in point: Another of Carey’s agents was working with a buyer for a long time who found a listing in Greenpoint that was being sold by the owner. When the agent reached out, the seller was very direct, “I am not paying a buyer’s broker,” they said.
This was also unusual, Carey explained, because even though FSBO sellers work without a listing agent, they do tend to pay the buyer’s broker a fee for bringing them a qualified buyer.
The agent made an offer that included a request for a buy-side broker fee, and the seller still said no, so the buyer agree to pay a fee to their agent to make the deal work. (But an all-cash buyer ended up with the prize.)
Why sellers felt emboldened
The lack of listings in Brooklyn means properties that are appropriately priced have lines around the block, Carey said, which may be why these sellers felt emboldened to offer lower commissions. Brooklyn listings fell year over year in the first quarter, dropping 8.8 percent, the eighth quarter to see a decline, according to the latest Elliman Report.
Carey pointed out that NYC sellers have always had the power to negotiate fees, or even offer nothing to the buy-side. “With our system, you could always put ‘zero’ for a commission,” she says, addressing a major point of contention with the NAR anti-trust lawsuits.
NAR lawsuits raises awareness
Even though they are separate trade organizations, recent headlines about NAR’s $418 million settlement helped raise awareness among NYC buyers and sellers about the change in how REBNY brokers are compensated.
REBNY’s move, announced last fall, didn’t appear to make any waves among NYC buyers and sellers, said Sandy Edry, a broker at Keller Williams NYC.
“No one really knew what was going on until the NAR settlement,” Edry explained. It’s only been in the past few weeks that New Yorkers have started to pay attention as a result of media reports about NAR’s March settlement, he said.
While seller behavior has largely been status quo, there are two potential opportunities for a bigger change, he said.
The first could be in July, when settlement takes effect and separate fees become standard for NAR members and media attention makes more sellers aware of their ability to offer less to the buy-side broker.
The second could be in a weaker sales market. For this Edry points to the rental market as an example.
“When it is a strong landlord market, the commission gets passed to the renter,” he said. In a weaker rental market, the landlord picks up the commission.
If conditions change in the NYC sales market, “I wouldn’t be surprised if see that same sort of shift in the future,” Edry said.
Trouble at home? Get your NYC apartment-dweller questions answered by an expert. Send your questions to experts@brickunderground.com.
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