There are great misconceptions about how brokers get paid for services, and who pays the brokers.
A brokerage fee is a part of the overall underwriting that a landlord creates when they are developing their rental rates for a particular project. How much they paid for the site, their expected return, the amount of money they spend to build tenant spaces, and the actual cost to operate the property are all factors that determine how much rent a landlord can realistically charge whilst being competitive with the market and achieving a desired investment return. And lumped into the aforementioned mix of costs are broker fees. The combination of all of these factors molds into the rental rate, paid by the tenant. So while some brokers may constantly tell you that you don’t pay for their services, in reality, you do. The rental rate a tenant pays is used to partially offset landlord expenses including the broker commissions.
Sometimes tenants try and connect dots: If the rent I pay is used to compensate a broker, then not using a broker should save the landlord money, and therefore by trickle down, save my company rent. If only this were true. It is a rare that not using a broker will result in significant savings finding their way back to the tenant in the form a rent reduction.
Here’s why. Remember, the landlord estimates commissions when they develop rental rates. And they anticipate a 6% fee (4% to the tenant broker, and 2% to the landlord broker). By not using a broker the landlord saves 2%. A small savings to a tenant, if they even get it. Here is the catch: it has been reported that tenants using the services of a qualified broker save 5x over not using a broker. So though a 2% increase in deal costs, the 5X savings achieved via a broker is significantly more advantageous to a tenant. Moreover, since you are paying for the landlord to have professional representation (remember the fees are built into the rental rate), a tenant should secure their own representation.
The savings is worth the cost!
