As reported by the Boston Herald, Boston my follow suit behind NYC in setting laws that would prevent Boston real estate brokers from charging apartment fees for potential tenants. I’ve read and heard debates from both sides, I must say they both have merits. In this blog post I’ll try to come to a common ground where both sides come out as a winner.
While Boston real estate brokers have long set their fee as a straight fee of the monthly rent , this formula is an anomaly and a primary reason why such fees may be inflated by more than millions if not billions annually. Although competitive pressures ordinarily produce a fee structure reflecting costs, real estate broker commissions are strangely unrelated to either the quantity or quality of the service rendered or even to the value provided. Rather, this fee has been based solely on the price of the monthly apartment rent. (It is as if tax preparers set their fee as a flat percentage of a client’s gross income, irrespective of how difficult the return was to prepare or how much their efforts saved the taxpayer). Oddly, not only is there no evidence that it is any more costly or time consuming for an agent to rent a higher-priced Beacon Hill apartment than median-priced Brighton/Allston apartment, but it is possible that the opposite may be true! Furthermore, the straight percentage fee formula creates little incentive for downtown Boston real estate agents to provide apartment renters or landlords with additional value.
But here’s a common question asked by brokers: Why not let the market dictate the fee structure? Allow disruptors and innovators to enter the free market. One example that comes to mind, how Charles Schwab impacted the fee structure for Boston stock brokers. We didn’t need government intervention to help the consumer who wanted a brokers knowledge or expertise. Which begs the question; Why do we need Boston politicians to get involved in real estate transactions? If there goal is to lower Boston apartment rents, perhaps they should look in the mirror and consider the hurdles they govern that negatively impacts real estate developers from building more affordable homes.
So what’s the solution? I’ll dive deeper into this in the following days.