October 25, 2018
When we were drafting the Yoreevo website, the most common feedback we received was a commission rebate of 2% doesn’t sounds like a lot. $20,000 on the average NYC apartment however, was very impactful! We thought we’d take that lesson and demonstrate how much a buyer’s broker is getting paid to help you by the hour.
Of course there’s a huge disclaimer to be made before going into this analysis. Some clients will buy the first apartment they see, others will look for months and never pull the trigger. There’s a very wide spectrum.
Revisiting our first post on what a buyer’s broker actually does, we explained five main responsibilities. We’re going to make assumptions about how long each should realistically take. If you disagree, feel free to do the math with your denominator – we’re pretty sure you’ll reach the same conclusion anyway.
Property Search – 2 Hours – Ever done a search on StreetEasy? It’s no different in the official broker portal. Pick your neighborhood, price range, amenities, etc and hit Enter. This shouldn’t take more than an hour but we want to bake in some cushion.
Walking You Around – 16 Hours – This is by far the most time consuming part of the process for a broker since there are a lot of apartments to see. Two hours of open houses per weekend for four weekends should get you a pretty good sense for the market. But let’s say you’re very thorough, very picky or both and double it.
Market Analysis – 6 Hours – In a future post, we’ll go into what exactly is done for a market analysis but despite what your broker tells you about their experience and gut, it comes down to numbers at the end of the day. This data is readily available on StreetEasy making the process much less time consuming than in the past. For an individual apartment, it can be done in 1-2 hours but say a three properties are being considered.
Negotiation – 5 Hours – Same as the market analysis, this isn’t too time consuming after the market analysis is completed. Assuming they did their homework, both the listing broker and buyer’s brokers are looking at the same numbers which anchor expectations to some degree. But the brokers aren’t buying or selling the apartment so the negotiation isn’t up to them. They’ll help you weigh your options, tactics and help figure out what makes sense for you but it’s you making the decision at the end of the day.
Board Package – 10 Hours – The dreaded co-op package (or condo application). Sure, it’s cumbersome but its reputation would make you think you’ll be spending a month on it. You fill out forms, gather documents, ask a few people for references and that’s most of it. The key word there is “you.” Your broker can’t get your tax returns or figure out who to ask for references so their time spent on this is mostly making sure everything is there, putting it into a nice package and delivering it. A good broker will spend a decent amount of time making sure your application has the best shot possible at going straight to an interview.
Again, we’d like to stress these are all our estimates so feel free to assume whatever you like but the total time above amounts to 39 hours.
This one is easier to figure out – all you need is a purchase price and commission. The average NYC apartment is about $1,000,000 and commission are virtually always 2.5-3.0% for each broker. Go ahead and plug in your purchase price but we’ll assume the average and get a commission of $25,000 – $30,000.
A little math gets you to your broker making about $700 per hour. Keep in mind we rounded up for all of our time assumptions and almost half of that was walking you around. Why go to law school when you can get $700 per hour to go on a stroll?
So what’s the catch? Why isn’t everyone a real estate broker? As we mentioned in a previous blog post, there are way too many real estate brokers in Manhattan and they only do a few deals per year. The hardest part of helping out a client is actually getting the client. Everyone is offering the same services for the same price so it’s very difficult to stand out. In economic terms, brokers have become a commodity. If you add in the time it takes to get a client, their hourly rate falls significantly.
The average NYC real estate broker does about 2.5 deals per year. Using that, a 40 hour workweek and the same numbers above and your broker’s hourly rate falls to about $35/hour. Law school looks a little better now.
Think about that again – you’re effectively paying $700 per hour for your real estate broker – a job that only requires one 75 hour course. This market is not functioning properly, a topic we addressed previously. If you prefer to pay your broker for the time they spent with you, rather than finding you, contact Yoreevo. We’ll get your search started immediately and have your commission rebate ready at closing.
By offering commission rebates, Yoreevo is able to spend significantly less time finding clients which, in turn, allows us to operate profitably despite rebating most of the commission back to our buyers.