Apartment brokers: customers pay the salesmen

Michael Vassar, a regular commenter here, wrote the following in response to my post on the theory of worker pay:

If salesmen were providing a service to customers the customers would be willing to pay for their services. That almost NEVER happens.

I can think of one case where customers do pay, and that's in the Manhattan apartment rental market where renters are responsible for paying the apartment broker's commission, which is usually 15% of the first year's rent.

This unusual custom was probably a response to rent control. Because apartment building owners were not allowed to pass on the costs of the sales services to customers in the form of higher rents, they outsorced the services to a third party whom the customer had to pay directly. (An example of how price controls never work as well as leftist bureaucrats think they will.)

Although apartment seekers do pay the brokers, it's something they absolutely hate doing. Yet you never see brokers competing on price, which leads me to believe that there is oligopolistic collusion going on.

Comments

[Brandon Berg]

It seems to me that customers actually are willing to pay for the services of salesmen. Businesses don't have to employ salesmen, other than to answer people's questions and help them check out, and paying salesmen more than is necessary to achieve that level of service must drive up prices. So if customers aren't willing to pay for salesmen, then why don't businesses drop them and compete on price?

I suppose one explanation might be that people aren't rational and salesmen convince them to pay more than the goods are really worth to them. But irrationality cuts both ways--maybe salesmen actually help people overcome an irrational aversion to spending money on something that really will benefit them.

[nobody]

Many business have drop the level of their sales staff to a min in both quantity and quality. These days service (both pre and post sales) is just terrible in this country. Often, a customer who have researched the product knows far more than the salesperson.

On the other hand, it makes plenty of sense to have highly trained sales staff on high end market. For example, top of the line men's clothing. The customer is not simply buying the rag, but he is also buy advice on how to look best in it. People are willing to pay for this type of information.

With the advent of craiglist and the like, people are skipping the middleman. Apt. brokers, like most realtors are becoming less useful now that people can get to the raw information themselves. Reduction in their commission is unavoidable unless they get government to shore up support for their little monopoly.

[michael vassar]

I was actually fairly nuanced in my claims and explicitly stated that customers DO willingly pay for salespeople in the higher prices they pay in high end stores. My complaint was about salespeople who leave their establishments.
That said, there is obviously collusion in the NY rent real-estate market, as in almost all real-estate markets.
In fairness to market skeptics, collusion is probably the natural state of markets for expert services, even without governmental regulation.

[Alex R.]

It's true, but only partially. I would say this happens mostly in the lower end of the market, with smaller landlords that don't have the resources to run "back-office" - checking people's credit histories, showing apartments, etc.

Larger landlords (basically, corporations and, increasingly, landlords renting in those high-rise buildings) typically accept people walking in from the street. If you doubt this, here's a site with hundreds of no-fee buildings, complete with their management companies' contact info:

http://www.nybits.com/apartments.html

But on the flip side, as I said, this is more the case with "higher-end" buildings - most new high-rises fall in this category. They have rents well in excess of $2,000 (the minimum for making the apartment "market price"). Once again, the rich are avoiding paying fees and "normal folks" are stuck with paying brokers (sorry, "the salesmen").