Ask HN: Why do real estate brokers in NYC make $1,000+ / hr?

As a quick note, I don't know much about the industry or claim to do so but I do feel I have a better grasp on it that how you've broken it down.

You've taken a job that you know very little about, that thousands of people try every year and fail and broken it down to simple 6 hours to rent an apartment and make a cool 1k an hour - seems like you've been watching alot of HGTV.

Thousands and I mean thousands of people try to make it in the NYC Real Estate world every year and come out broke and jobless. Most of these people probably came in thinking along the same lines you are.

Is the fee unfortunate? Yes, do people understand exactly how much their paying - maybe not. Does it take someone six hours all by themselves to rent an apartment? Nope.

I'm not sure if you're a programer or not but what you've done here is basically the equivalent of me saying "Eh, that's one page of code? And he types at 60wpm? That only took him 4 minutes. Why am I paying him more than $2.44".

Very valid points here Neuen. But most programmers are paid by the hour - not by lines of code. My argument is that agents should be compensated hourly as well.

Programming is something that is taught at the highest level of academia, and requires a tremendous amount of skill, brainpower and discipline to deliver a quality product. I don't think you can compare it to to showing apartments. There is not much skill required or education to be a rental agent (a few weeks of school and written exam, like a driving test). If you can operate the camera on a mobile device, post an ad on craigslist, and open a door lock - you are in business.

My argument is that renting out an apartment in Manhattan is similar to selling the latest iPhones as soon as they hit store shelves. The product sells itself because of the high demand and limited supply. The skill of the salesperson at the Apple store is not very relevant, which is why they are compensated hourly and not on commission.

Make sense? Is there something I am missing?

Well, you're way off on your math. Just the communications and scheduling of those 9 prospects (and dealing with no-shows, late-shows -- not to mention getting there and back, because it's not like you can get them all to show up in the same time window, back-to-back) involves a very significant multiplier on the 20 minutes per actual showing (1.5 hours per actual, physically appearing prospect) would be a better estimate).

And ditto with the overhead on everything else you're mentioning. Plus they have side costs, and (significant) downtime between clients, etc. I'm not saying these are wonderful people that deserve every penny they're paid. But there's no way the "average" broker is taking in around $7k a week (or $350k a year) as your math would seem to imply.

My argument is that a better model is to compensate the agent hourly vs. commission.

If that was in any way viable it would have happened along time ago. There are reasons the compensation is commission-based; it's because it's basically a sales job, and the same remuneration logic applies: you get paid for closing a sale -- not for posting ads on Craigslist, or for talking up the parquet floors and fireplace and how great the restaurants are.

The math is right, but agree the estimated time to close a deal may vary. Open houses are designed to cluster the showings back to back. And if the unit is priced right, and in a desirable location, it will probably take less than 9 showings to close the deal.

Also, what side costs? Seems to me like the cost of marketing is near $0. A physical store front or location is not required, and other expenses like phone, internet access, metrocard are likely to be incurred whether there is deal flow or not.

"(significant) downtime between clients" - Are you saying the agent should be compensated for the down time when not working?

I'm not implying that agents are churning out deals every waking minute in the same way that an Uber driver probably doesn't have one customer after another. There is too much competition and too little inventory for that scenario to be realistic. But the time they are working, the amount earned is not proportionate to hours contributed. And I don't doubt that some top tier agents are bringing in 6 figure incomes.

This business is a popular profession for part timers, moms, aspiring actors. My argument is that for the time they are working, its disproportionate to other occupations, because they earn a commission on a very high figure.

Is there more 'work' or hours involved renting a 2 bedroom for 8k vs. a 1br for 4k? Seems to me like the process is identical.

Working at the Apple Store is also a sales job. Why is there no commission then? Because the product sells itself. Manhattan apartments are in the same arena - the virtue of it being on the tiny island sells itself, if priced properly. Even the best salesman could never close the same deal if the identical unit were across the river in NJ.

When people go to apple store, they probably already know the product and ready to spend, I am going to argue that Apple sales people are closer to convenience store clerks, than to real estate agents.

When someone looks at apartment, that's the first time they've seen it, and they didn't discuss it with their coworkers to death for weeks. I think just asking them for a check at that point is a bit more complicated compared to what Apple sales person has to do. Salesmanship will be important in explaining why the apartment is worth 4k, vs. whatever they think it's worth. Apple price is a one-time price for a few hundred, or at most a few thousand dollars. Each month rent is going to be more than an Apple gadget, coupled that with completely unknown product and the sales skill required becomes unparalleled.

There is obviously a difference between renting out 8k apartment vs. 4k apartment. Usually people can squeeze into a smaller apartment, usually in NYC they will be unhappy with tiny apartment as it is, and usually there are a lot of apartments they want to see before committing - it's not like Apple with only a few devices. Two apartments both at same price may be entirely different, and just because one apartment is lower price from another doesn't mean it is inferior, so it's harder to compare than electronic devices (for example apartment maybe higher in price for being next to a subway station, but if another apartment is right within walking distance of a person's job - it would be way more valuable to them, or perhaps it's closer to the correct subway line).

Is 1 out of 8 a realistic number for getting someone in NYC? do you have a source for it?

Regarding side costs - there are people who work as photographers for real estate. So if you want your listing to look nice, you may want to get one.

Take this with a grain of salt, I've never been a realtor. I have rented apartments only in NJ, and bought a house in NJ.

On the one hand - you are right that the hourly figure is high. It just wont be THAT high.

For example 20 mins per showing assumes they teleported to the apartment, right?

You didn't include all of the fixed costs, like the broker's rent, staff, insurances, cars etc. You didn't include the time spent haggling with the property owners.

So lets assume the pay is lower but still high - say $200 an hour. That is still alot. Why aren't people advertising on craiglist themselves.

On to my second point:

I don't live in the US. Buy my wife sold her apartment herself without an agent (broker) for a good price. She tried an agent first but they were not interested in putting in that much effort. So I agree that these overpaid agents are not always needed.

So why do we need brokers/agents in 2014 when most of the work is marketing, which the internet takes care of (and isn't a lot of work)?

Premium properties and fixer-uppers excepted!

You make some good points. Many agents work a specific neighborhood, and lets also remember that open houses are typically on weekends and showings are clustered together.

Sure, the broker has some basic expenses, but there is really no cost of the good sold. A store owner pays the same fees, and also pays for cost of a good.

Exactly the point where in the old days, pre-internet - brokers needed to pay for marketing- classifieds in newspapers, signage, etc. Now the cost to advertise a listing is $0.

I don't disagree that it's ridiculous - same could be said for the 6% commission on an apartment/property sale. But they do it because there's enough supply to continue the practice. If a building were to propose paying them hourly, they'd likely balk, and choose to focus on different listings with a higher commission.

There's plenty of room for disruption - many companies are tackling it, basically growing the concept of "pocket listings" for rentals - but NYC has a high volume of renters and it's a difficult market to convert to a new business model for something as entrenched as real-estate.

On a property sale, the owner is choosing to pay a broker to list, show, market, etc. A licensed broker is required to gain access to distribution via MLS. If the owner wants to show it themselves to save the commission, the are free to do so. In the rental scenario, the customer has to face the 'extortion' of the broker to gain access to the unit. They are not hiring the broker to save them time as with the sale.

"In the rental scenario, the customer has to face the 'extortion' of the broker to gain access to the unit."

Not really.

The owner of a property could certainly personally show a rental. They just typically choose to hire a property management company to handle that process (as well as the other management tasks) for them, and they outsource the task of finding a renter because it doesn't cost them anything to do so - the renter pays it. Doing it this way allows them to scale their operations by using 3rd parties to handle the showings for as many properties as they own without having to handle it themselves. They have no incentive to change.

Agree that outsourcing is necessary to scale, but the commission model does cost the landlord indirectly. The argument is not against the use of brokers but changing the fee structure so that the landlord earns more, tenant pays less, and broker is paid for time. Higher rent seems like an incentive to change.

You still haven't explained why a broker would accept that model when there's plenty of property owners content with sticking to the existing, proven model.

Flaw in your plan: what if the deal doesnt work out? who compensates the agent? The 6% fee is amortized over the 9 clients that didn't work out - each has phone calls, paperwork, organizing, travelling.

From the agents perspective: Its a much harder job than you imagine. You have no control over the quality of your product, or its pricing. Also you can do just a few visits per day.

From the landlords perspective: When you own several properties you will have better things to do with your time than do a real estate agents job.

Anyhow the issue isn't with real estate agents. Its with asset inflation vs wage stagnation. Start complaining about that instead !

The is accounted for in my plan. Showing 9 prospects means that the deal didn't work out for 8 of them. And 6% fee is fo sales, not rentals. Phone calls and travel is a fixed cost now as both are now unlimited for a monthly fee, and most likely incurred whether there is deal flow or not (most have mobile and monthly metrocards regardless). Please clarify your last point...

The relevant cost of the phone calls, the paperwork, and the travel isn't paid to AT&T or Staples or the metro.

The cost that matters is the time involved. And that's far from unlimited for a monthly fee.

Precisely. Argument is that compensation should be based on time and not % of rent.

That's philosophical.

Is the agent being paid for effort (input) or results (output)? Either can work.

Take the case of an agent that spends twice as much effort (and has the unit vacant for twice as long). Should that agent be paid more or less than an agent that fills the vacancy quickly and efficiently?

As an engineer/executive, I'd much rather be paid for the results I generate, not the typing that I do.

My argument is that the results generated are not a product of the skill of the agent, but of the intrinsic demand for the product. Supply is very limited, and demand is extremely high. The unit will move itself, regardless of effort extended by the agent. As an engineer / executive - you would only rather be paid for results if you are a good worker and your output is positive. If your output is poor, or you produce shoddy work, you probably would prefer to be paid for time on the job.

If your hypothesis is completely true, why not become a broker and offer "1/2 fee" services? You'd still bank $500+/hr ($1MM a year full time equivalent); landlords would sign with you because they could charge an extra $100-150/mo rent while tenants would still save money overall versus those antiquated businesses charging full fees.

You'd have an unstoppable competitive advantage...assuming of course that your hypothesis is perfectly true and that the broker is really banking almost $7K for 6 hours of work.

My wager is that you'd find yourself falling well short of the million in annual income that your half-fee business plan would predict.