What's the deal with "No Fee" apartments in New York?
When searching for an apartment in New York City, many renters come across listings advertised as "no fee" rentals. These rentals do not require the tenant to pay a broker's fee making the tenants think that they are saving a lot of money; however, there's often a catch: they're sometimes listed using the Net Effective, not gross rent, making them look much cheaper than they are in the short term.
Here's how it works:
Net effective rent is calculated by taking the actual rent, and then subtracting any "concessions" the landlord or management company is offering and rolling them into the remaining rent. In other words, NER means, "Sure, the rent is x, but with the discount, it's as if you were paying y!"
For example, if an apartment has a gross rent of $3000 per month and the landlord is offering a free month of rent, the net effective might be advertised as $2750.
3000 x 11 / 12
Again, you get one free month of rent, then pay $2750 + $250 eleven times.. hence the free rent is "made up" over the 11 months to follow.
The advantage is that you likely get to pay less front money, but the disadvantage is that you think you're getting a $2750 a month apartment, when you're really getting a $3,000 a month apartment, meaning all fees, deposits as well as rent increases in the second year are going to be based on the gross rent ($3,000) not the Net Effective Rent.
If the apartment is worth $3,000, you got yourself a deal. But if it's a an apartment that caught your eye because it looked reasonably priced at $2750, you may have been better off finding a $2750 apartment worth $2750 and just paying the broker fee, saving on both the front money, and possibly STILL paying under $3,000 in the second year when the rent might go up around 3% (or more) unless it's a rent stabilized apartment.
It's all about doing the math.
NER -> Gross Rent Calculator
*This calculator is based on a 1 year lease term.