For the first summer in years, many New Yorkers may be able to move into new apartments without first paying thousands of dollars in fees to a broker whose help they did not ask for.
A new law known as the FARE Act that is set to go into effect on June 11 says the fees should be paid by whoever enlisted the broker — often a landlord or property management company, not the renter.
The rise of online platforms like StreetEasy and RentHop has made renters less likely to hire brokers, since it’s easy for them to scour listings themselves. And it can be frustrating to fork over as much as 15 percent of the annual rent — a $4,500 fee for a $2,500 apartment — to someone who is trying to help landlords make money.
Few places outside New York City have systems like this. When broker fees are combined with other upfront costs, like a security deposit, the price of moving in the city can easily stretch beyond $10,000.
But the Real Estate Board of New York, an influential industry group that is suing to stop the FARE Act, and many others in real estate say that the new law is unfair and will lead to confusion and higher rents.
Here is what to know about broker fees in New York City:
Why do broker fees exist?
Before sites like StreetEasy took off over the past decade, renters typically relied on word of mouth, “for rent” signs, newspapers and Craigslist to find apartments. Hiring a broker who had access to special listings and familiarity with the housing market could help cut through much of the clutter.
The fee — usually one month’s rent or 15 percent of the annual rent — compensated brokers for their services.
Today, with detailed online listings available, many renters believe brokers don’t do much. Brokers testified during City Council deliberations over the new law that that’s not necessarily the case: They still take photos, acquire floor plans, craft marketing materials, answer renters’ questions, set up showings and often even put together the listings renters rely on.
Sometimes landlords pay the brokers to create listings, which may be posted as having “no fee” for tenants. In March, roughly 57.5 percent of rentals listed on StreetEasy did not require tenants to pay broker fees, according to the company.
Landlords might also distribute information broadly, knowing that brokers will use it to create their own listings. In these cases, brokers might ask tenants to pay. The FARE Act would prohibit this.
About 5,800 new leases, on average, were signed in Manhattan each month last year, with more than 40 percent coming over the summer, according to data compiled by Jonathan Miller, the president of the appraisal firm Miller Samuel, which tracks lease signings.
Who wants to stop the law?
Many people in the real estate industry characterize the FARE Act as a poorly worded political stunt designed to pander to renters.
They say forcing landlords to pay broker fees will lead to higher rents to cover the fees, making New York City even more expensive.
“It’s not just a small addition to the rent every month,” said Sarah Saltzberg, the owner of Bohemia Realty Group, one of the plaintiffs in the lawsuit to stop the law. “It then is compounded over years.”
REBNY, which filed the lawsuit, argues that the city law should be invalidated because the state is responsible for regulating the conduct of brokers. The group also says that it may become harder to find apartments in an already constrained market if brokers stop creating listings with information from landlords because they can’t charge tenants a fee.
Didn’t the state already get rid of broker fees?
Sort of. After state legislators passed tenant-friendly rent laws in 2019, a state agency interpreted those laws in a way that barred many tenants from having to pay broker fees.
The Department of State found in 2020 that broker fees, which were not specifically mentioned in the 2019 laws, must be collected from landlords unless a tenant hires a broker to find a unit.
But REBNY sued in state court, saying that the department had acted improperly, and the fees returned.
Who supports the law?
The law was crafted by Chi Ossé, a Brooklyn councilman whose own frustrating experience hunting for an apartment helped inform the legislation. The City Council passed the law in November, with 42 out of 51 council members in favor. Because Mayor Eric Adams took no action on the bill, it became law in December.
Mr. Ossé said the law would help tenants who were already struggling to afford the cost of living in the city. He acknowledges that in some cases the rent might go up, but maybe not as much as real estate industry groups are claiming.
“Landlords still need tenants in their homes,” he said. “The market is set by what tenants can pay.”
StreetEasy agrees, saying that its data does not support the idea that rents will rise beyond normal market increases if listings no longer require tenants to pay broker fees.
The average upfront cost of moving in the city — including a broker fee, one month’s rent and security deposit — was nearly $13,000 last year, the most since 2017. Many New Yorkers find it too expensive to move even when they need to.
Caroline Burton, the general manager at StreetEasy and a vice president at Zillow, which owns StreetEasy, called the law a “major step forward for housing affordability in N.Y.C. and a change renters want and need.”
The law also has the support of Gov. Kathy Hochul, who disagreed with REBNY about the conflict with state law. She said in an April statement that “renters should not have to face the burden of paying thousands of dollars upfront for an apartment, especially when they often are not requesting the services.”
So what happens in June?
Judge Ronnie Abrams of the Southern District of New York is still considering REBNY’s request to halt the enforcement of the law.
If the law does go into effect, it might lead to higher rents and less inventory, according to REBNY.
Supporters like Mr. Ossé, though, say the bill will make it a lot easier to move. Violators, he said, will be fined, and he is working with the city to think about ways that bad actors might try to work around the law.
Mihir Zaveri covers housing in the New York City region for The Times.
The post What to Know About Broker Fees in New York City appeared first on New York Times.
