What It Means That Manhattan’s 6% Real Estate Commissions Are On Borrowed Time – Forbes

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In the fast-paced real estate market of New York City, commission structures are more than just percentages; they’re a reflection of evolving market dynamics and consumer preferences. This report looks at buyer-broker commission rates in Manhattan and Brooklyn. In Manhattan, typically, a 6% commission is split evenly between the sell-side and buy-side brokers. In Brooklyn, commissions are decoupled, and the seller is free to offer a separate, often lower, commission to the buyer broker. As Manhattan moves toward the Brooklyn model in 2024, the contrast between two distinct models may hold implications for the future.

Is a change in commission structure coming to Manhattan?

Starting January 1, 2024, a notable change in the New York City real estate market will take effect. This change, part of the latest edition of the Real Estate Board of New York’s (REBNY) Universal Co-Brokerage Agreement (UCBA), will significantly alter how offers of compensation are made to buyers’ brokers. Instead of listing brokers handling these offers and paying the buy-side compensation, as is currently the case, sellers will directly make written offers of compensation to buy-side brokers and pay them separately at closing. If no offer of buy-side compensation is made by the seller, buy-side brokers may negotiate to receive compensation from the buyer. This is how Brooklyn currently operates, so it may be seen as a precedent for what to expect.

Buy/sell, rent/lease residential &
commercials real estate properties.

A dive into market statistics

Why is this important?

The main reason consumers should pay attention to the upcoming changes is simple: cost. Consumers, both buyers and sellers, need to understand the costs associated with real estate transactions. Changes in commission structures directly impact the cost of buying or selling a property, and given the increase in transparency the new rules provide, these costs can be more closely managed. Aside from that, consumers should realize that while the overall process of buying and selling has not changed, there may be some confusion for both consumers and professionals as the new rules take hold. For example, for many consumers, the process starts with finding an interesting listing online and then visiting an open house. With the upcoming changes, consumers may be asked to sign additional disclosures reflecting the fiduciary responsibilities and relationships, which may be off-putting if unexpected. For real estate professionals, this means there may be buy-side brokers who, after working in an unpaid capacity with tentative buyers for several months, may have to negotiate a compensation structure which can introduce friction.

Commissions are part of a larger narrative

The tale of two boroughs tells us that while commission rates are certainly a factor, they are part of a larger narrative of market identity, consumer preferences, and service expectations.

Manhattan’s adherence to a higher median commission rate reflects not just market structure but also consumer behavior. Despite the allure of low-cost brokerages and DIY services, many sellers and buyers in Manhattan, perhaps due to higher price points, still prefer the full-service, bespoke experience. It’s a bit like Broadway versus off-Broadway; both have their appeal, but there’s a perceived prestige and assurance in the former. That being said, as 2024 gets underway and the decoupling process is put into place, the following factors may come into play:

  • Market pressures – the fall busy season was not too busy, and prices have drifted lower. Will sellers respond to a slow market and falling prices by cutting commissions?
  • Consumer preferences – Brooklyn shows that while buyer brokers provide value, there is room for negotiation.
  • Regulatory changes – as lawsuits change the way residential real estate is transacted, will commission rates default to lower levels?

Any way you slice it, as the listing season begins again in spring, new Manhattan sellers may opt to follow Brooklyn’s lead and economize.

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