Increased demand means trouble for real estate agents at Boston apartment buildings

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In a bold move by Equity Residential, a national property management and REIT, fees paid to referring real estate agents will now be cut by more than half. Typically the company, along with many others in the Boston area, had paid a one month commission to real estate agents who accompanied their clients at their first viewing of the property.

No longer. As demand has increased for their luxury apartments throughout Boston and Cambridge, they made the decision to cut referral payments down to $500-$1,000 (less than half of what was previously earned by agents on their average $2,500/month apartment). The Equity properties that have been affected by this thus far are Third Square in Kendall Square and their portfolio of West End apartments. Equity is not the only company to cut broker fees recently. Harborview at the Navy Yard, managed by Roseland Property Co., also cut fees to flat rates, as did Archstone on their Avenir, Kendall Square, and North Point properties. Is this a trend that will stick?

Experience would say no. In the past, luxury apartment community managers have fluctuated their commissions to agents to meet demand and rents. As demand has picked up thanks to a lackluster condo sales market, and a lack of new rental supply, these communities have been able to raise their average rents more than 5% since this time in 2009. If they can manage to raise rents and ultimately bring in renters through their internal marketing rather than paying for referrals, then this would be a profitable move on all fronts. Unfortunately for them, it hasn't always been that easy. At many of the luxury communities in Boston, real estate agent referrals account for as many as 60% of the residents. Not to mention, they undoubtedly bring more foot traffic to the door, which obviously has the effect of increasing demand (and the rent they're able to charge).

It is our understanding that fees paid to referring websites, such as Rent.com (who is paid $389/lease), have withstood the highs and lows of the economy, so why pick on the real estate agencies?

They're an easy target and are at the mercy of the company who pays them. Unlike Rent.com, whose sole service is to provide a prospective renter to the apartment community, Boston real estate agents are required to accompany their clients and be present at the first showing - or risk not being paid for their referral. What are the other differences you might ask? Very little to nothing. After accompanying their client at the first viewing at an apartment complex, it's possible that the agent remains in touch with their client and acts as liaison for the leasing staff at the building, but this is not required. Often, their client will begin to speak directly with the on-site leasing staff who will handle processing their applications and leases, and help them schedule their move. The agent, meanwhile, sits back for the client to move in so that they can invoice the building management and wait on their commission check to arrive in the mail 30 days later.

What happens when this commission check becomes equal to, or less than, what is paid to a faceless web referrer like Rent.com? Real estate agents either decide to charge their client an additional fee (on top of what they are paid by the apartment building), or they purposely avoid these buildings altogether. The problem with either of these strategies lies in the fact that there are many ways for their clients to find out about these buildings, and once they do, why would they go through their agent to rent there if they can go direct and save on the additional fee? Ignorance? I'm as lost as you are for an answer there. Even if an agent did tell their client about the building (constituting a referral in most businesses, no?), there is nobody stopping them from going without their agent once they inevitably find out that they're getting charged an extra thousand dollars by their agent when they could have easily avoided it.

A solution for all of these issues that will inevitably arise from the new referral structure: make it clear! A referral is simply someone sending business your way. Apartment communities ought to do away with the accompanied showings with agents and treat them as they would an internet referral - pay them a flat rate per lease, but don't make them show up at the property. By clarifying the way referrals are handled once and for all, maybe you'll see some increased incentives for renters through the referring sources to compete with Rent.com's $100 "reward card." At mycityapartment.com, we love incentives for renters. After all, without them, there's no reason for renters to give the referral credit to their referring source, beyond that they're genuinely nice people.

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