Why are NYC real estate fees so high?
Go Back To Previous PageWhen I place an order to buy Microsoft stocks, my broker charges me $4.95. I can choose and compare thousands of options when I shop for a hotel, insurance, or plane ticket. With Amazon Prime, I no longer pay for shipping. The internet reduced inefficient intermediaries in most industries. Why haven’t real estate brokers in New York been affected? Why are NYC real estate fees so high? Lastly, real estate agent fees in NYC and New York state have remained unchanged over the past 40 years! Let’s brainstorm about real estate broker fees in NYC!
As a Frenchman, I am particularly shocked by the high 6% NYC real estate fees paid in New York.
real estate agent fees in NYC
The average commission paid to brokers in the United Kingdom, Australia, France, and Belgium ranges from 1 to 3 percent. Sale Prices in NYC may rise and fall.
Trends may come and go. However, one number remained unaffected: the “standard” six percent broker commission.
With 6%, NYC has the highest real estate commission rate globally and even within the United States.
If you try to negotiate, brokers will tell you that “6% remains standard“. They also comment, “this is the way in New York.” Maybe if you are a friend or a family member, they will go down to 5%.
This is fewer proceeds in the seller’s pocket in a city with high closing costs. Real estate fees in NYC make the market less liquid, and more money goes into intermediaries’ pockets.
real estate broker fee NYC
“No standard” out there: real estate broker fee NYC
The national U.S. average real estate total commission real estate brokers charge to sell a home is 5.36%. While in the U.K., real estate brokers charge 3.25%. Lastly, in France, it ranges from 2 to 4%; in the center of London, brokers charge 1.7%.
It’s common for real estate agents in NYC to charge a lower fee for more expensive apartments in London or Paris. Brokers generally do not accept that in New York and NYC, real estate fees are the highest in the world.
To make matters worse, in London or Paris, the average agent commission remains lower than in the rest of the country when you buy a home. How do you explain this? A home purchase in London and Paris is considered a safe and liquid “asset class” in other words, it is easy to sell, and it is easier to sell a studio by the Eiffel tower than a farm in Normandy.
For this reason, the listing agent trying to sell the farm needs to charge more. The same statement applies to rentals, but this will be the topic of another blog post.
The same rationale should apply to NYC real estate but does not.
Why are NYC real estate fees so high? It turns out that real estate in NYC stayed higher than in the rest of the country when the market remains more liquid and transparent.
In New York, most real estate opportunities remain available on public domains such as Zillow and StreetEasy. Properties move fast, inventory is always high, and demand continually grows.
The listing broker and the buyer’s broker each earn 3%.
Real Estate Cash Back Rebate Program
Technology and start-ups like NestApple offering buyer rebates changed how we do business in ways that were unimaginable a decade ago. Real estate broker fees in the U.S. and New York are considerably higher than in Europe, representing 5 to 6% of the purchase price.
This remained unchanged with the Real Estate Board of New York’s blessing.
This percentage is split evenly between the seller’s agent and the buyer’s agent (2.5% to 3% for each). If not, the seller’s agent receives the entire commission. The full-service real estate brokerage firm NestApple is listening to the market.
While some brokers sometimes give small discounts, most will not decrease their commission structure. NestApple pays back 2% to the buyer at closing, which averages $22,000 in cash refunds.
Real estate practices should adapt.
Experts say that residential real estate practices should adapt and evolve now that buyers and sellers can access property listings and other information that was once hard to get. We predict that the NYC real estate fee is up for disruption and will decrease.
NestApple founders Georges and Nicole Fishman Benoliel are long-time real estate investors in New York City. After going through the lengthy and costly process several times, they grew increasingly uneasy about the outdated system. Most segments of the economy have evolved due to innovation; however, real estate still operates in an old-fashioned manner that dates back to the 1980s.
While websites like Streeteasy or Trulia make it easier to search for homes and find comps, nothing has changed in how people buy and sell real estate.
An increasingly transparent market
In an increasingly transparent market, there is less value in what traditional brokers offer. “The market has never been so transparent,” says Georges Benoliel, “all the information is available online; two clicks are all it takes to know what your neighbor paid for his apartment or whether he took a mortgage.” “The role of realtors needs to evolve and adapt,” adds Nicole.
While searching for ways to bypass the system, Georges and Nicole stumbled upon the concept of commission rebates. It is legal in 40 States, according to the Department of Justice, and has been publically encouraged by New York’s Attorney General.
Homebuyers can look up properties themselves.
All the information is available online. All you need is a guiding hand and an experienced agent to assist you in pricing and negotiating. The role of the licensed real estate broker has changed, and so should the commission they receive.
“Our goal is to bring sellers and buyers together more efficiently and pass the savings onto our clients,” says Nicole Fishman Benoliel. Nicole sometimes acts as the landlord’s agent, hosts open houses, and gets tenants to pay broker fees.
Georges has been working in Wall Street for the last 16 years trading derivatives with hedge funds. He has been an active real estate investor for over a decade. Georges graduated from HEC Business School in Paris and holds a master in Finance from ESADE Barcelona.
