A long-reviled part of the Boston apartment-hunting process isn’t affecting renters as much lately because of the coronavirus pandemic.
Along with some of the highest apartment rents in the country, Boston is also home to the broker fee, a cost often equal to one month’s rent that clients pay in their real estate transactions. The fee, at face value, pays the real estate agents for their time showing clients different properties, but some customers complain that they are paying a fee even though they were the ones who found the listing in the first place.
But rents have come down, and the available apartment supply has gone up. Brokers are suddenly looking at a different source to pick up the tab on this fee.
“It has been widely reported that the Boston-area market has softened significantly due to COVID, and I can confirm the reports,” said Adam Umina, owner of Metro Realty Corp. “Landlords are paying fees, lowering rents, and, in many cases, offering free rent to fill their apartments.”
Higher-than-usual apartment vacancy rates in some of Boston’s hottest neighborhoods have the city in a rare renter’s market. Neighborhoods with vacancy rates above 10 percent include downtown, Back Bay, the South End, the Seaport, South Boston, and Cambridge’s Alewife neighborhood.
It seems landlords suddenly need broker services more than prospective renters do.
“It comes down to the dramatic change in overall market conditions as a result of COVID-19,” said Aaron Jodka, a managing director of research and client services at Colliers International. “I believe it’s a temporary disruption of demand drivers causing landlords to recalibrate for how to fill up their properties: offer lower rent, free rent, or other types of concessions like paying the broker fee.”
Rent concessions and incentives like landlord-paid broker fees aim to stimulate demand in a soft housing market. That is particularly true during a global pandemic, when college students, the source of much of Boston’s apartment demand, are learning remotely.
“The pandemic changed the rental market in Boston quite quickly,” Jodka said. “Not every student is back on campus, and college students are a major driver of Boston’s apartment market.”
Real estate development firm Mount Vernon Co. was able to fill its residential buildings in student-heavy neighborhoods like Allston and Brighton this year. But even it had to make the occasional concession for apartments still available late in the cycle.
“We’re full because we got aggressive early, but for the units that we’ve rented very late in the cycle, we did offer brokerage fees,” said Bruce Percelay, chairman and founder of the firm. “It ebbs and flows in the market, and, right now it’s flowing toward the brokers.”
But while the market may be soft enough for broker fee responsibility to pivot to landlords, experts say they don’t see the pandemic affecting the value of the overall apartment building. Low interest rates and long-range vision keep investor eyes firmly on Boston.
“Most folks view this as a temporary — but not insignificant by any means — market condition,” Jodka said. “People believe we will have a vaccine, and the Boston we have grown to love will return to that structure. We continue to see strong valuations.”