So the landlords just make the rent more expensive to account for having to pay the broker, what changed?
Nothing.
Clearly brokers are doing something or else people wouldn't pay for them.
My theory is the broker fee has positive selection for wealthier tenants, which for every property - low or high rent - makes for an economically better tenant. Raising the rent has the same effect. We care that there's cheap rent because shelter is a basic human right, and we appreciate that spending tons of money on rent couldn't possibly be good in a positivist economic sense, but of course raising the rent also selects for a wealthier tenant.
Replacing the brokers with software has a similar effect. If your users feel comfortable using a complicated website with no human beings involved, they are going to be wealthier.
This comes up everywhere. For example Oscar selects for a healthier insurance pool by being a complicated app - old people want real human beings to talk to and are turned off by apps, and they are also more expensive for insurance to carry, so it's a "win" for Oscar. Credit card only restaurants with lines make higher revenue because lower-ticket cash paying customers are substituted by higher-ticket credit card paying ones. And the iPhone is a $800 phone versus a $300 Android one, no wonder iPhone users spend 2-5x as much on IAP.
It's not unlike the role a recruiter plays for jobs.
In many cases (not talking about NYC here), what they're doing is simply blocking access to an apartment. You see an apartment, you have to deal with the broker / real-estate agent / makelaar. Or - you don't even see it in the first place, since it's only available via an agency.
This is similar to setting up a roadblock and collecting a transit tax; or the "troll under the bridge" from folk tales.
That being said - In some cases and some places brokers can help apartment seekers filter relevant apartments, and can help convince both the seeker and the landlord to compromise, agree to some arrangements to seal the deal. Another benefit of such type of apartment brokerage is that a broker with a minimum of reputation would not try to scam you (rent contract scams are a thing in some countries); and may be able to exert some pressure if, say, some serious problem is revealed right after you move in and the landlord doesn't want to address it.
They were, pre-internet. It actually made sense then in NYC with such complicated and massive amounts of inventory.
They don't make sense anymore. The only reason they still exist is because lazy landlords just want to stick with the system they've always known, because it feels "free" to them. In reality they get lower rents, but that's harder for them to see. And it's a problem of coordination -- as long as most other properties use brokers, you really don't have a reason to change.
The slow increase of no-fee listings has changed that. But it's still slow, and a lot of it is new buildings. It's hard to get landlords who have done things the same way for 40 years to change.
Just like the real estate agent business. Sellers have the option to sell it themselves, or use an agent. Agents do better and more organized marketing, handle the paperwork for the transaction, and offer help in prepping/staging the house. Etc.
When I rented my place in NYC some years ago, the broker fee was meaningful to me. Once I paid it, I was less likely to want to move since I'd have to pay it again vs renewing my existing lease which did not involve another broker fee.
There's a great Joel Spolsky comment[0] that explains why landlords use brokers. They perform work that would otherwise be done by the landlord.
The only reason landlords deal with them is that it's easier for them to do so, so why not. It's pervasive enough, as a quirk of history, that it's tolerated. They certainly do not provide value that matches up with their fees in most cases.
Rents may go up, but it will be only a fraction of the insane fees retail brokers in NY charge. It needs to change.
[0]: https://en.wikipedia.org/wiki/Principal%E2%80%93agent_proble...
It works similarly when software is chosen by people who have to use it versus those who do not. IDEs and text editors are usually chosen by the users, so there is competition on usability between different options. Timesheet and other HR software are usually chosen by upper management, and the people actually using them cannot switch, so there is not the same kind of competition on usability. Instead, they compete on other things that make them more appealing to those who can make the decision.
Tenants can't "shop around" for a different letting agent that won't charge them £250 for a £50 credit check. Landlords can.
Yes. The problem is that the one whose pocket the money comes from is not the one who selects the broker. Thus the person with the financial incentive to make that choice wisely is not the one making the choice. This is why it's a principle-agent problem.
The majority of apartments in certain cities charge this fee, so if you care to find one that doesn't you'd have to look for advertisements explicitly mentioning "no agent/broker fee". Maybe it's just my circle, but even the people I know that will look in less desirable locations for cheaper rent do not bother to look for this. It's also not far off from various psychological tricks seen in business - consumers do not behave rationally.
I'd argue it's even a bit worse than other sticker price bait and switch situations, because how many people know to look for this? Mostly only people that have signed a lease in one of these cities before, which for a place with a lot of transplants and subletting can be a surprisingly small number.
At some point I wouldn't even call it irrational to ignore the fee. Once you've decided on a place and receive the rental app to fill out, are you really going to turn back because you found out about the agent fee? Especially as time runs out to find a place and you realize more than half of them do the exact same thing?
I honestly wouldn't be surprised if some landlords have come to an agreement with the agent they use to get a bit of a kickback from the broker fee, unbeknownst to the buyer.