In New York City’s highly competitive rental market, perhaps no ritual stokes greater ire for prospective tenants than paying the broker’s fee.
For decades, tenants were expected to pay the fee — a one-time payment that can cost as much as 15 percent of the annual lease amount — regardless of how closely they worked with the broker. New York City is one of only a few cities in the United States where tenants pay for a broker they do not hire themselves.
But that is likely to become a thing of the past: On Wednesday, the New York City Council voted to approve Intro 360, called the Fairness in Apartment Rentals Expenses act. The bill requires whoever hires a broker to pay their fee, meaning a landlord will foot the bill if a broker lists a home on their behalf.
Landlords and their agents would also be required to disclose all upfront fees in listings and rental agreements, or else risk a penalty, including fines of up to $2,000. The bill passed 42 to 8, which was enough for a veto-proof majority if Mayor Eric Adams attempts to stop it. (In a news conference last month, Mr. Adams expressed concern over how the legislation would affect “small mom and pop property owners.”)
The move is an apparent win for rental tenants. Many New Yorkers have long questioned the need for a broker when online listing platforms like StreetEasy exist. A broker fee can add thousands of dollars to a tenant’s moving expenses, in addition to other upfront costs like a security deposit or first-month’s rent.
But some brokers believe that the new law would only hurt tenants, with landlords simply passing along the fee to them in the form of rent increases, and by creating less transparency in the rental process.
“It’s an absolute mess for tenants, and it’s an absolute mess for brokers who work with tenants,” said Bill Kowalczuk, a broker with Coldwell Banker Warburg.
If rents go up, more prospective renters are likely to navigate the process alone to avoid paying higher broker fees, he said. “Tenants will not be getting any guidance any longer,” Mr. Kowalczuk added. “They’re going to have to do all the dirty work themselves.”
The bill isn’t the first time rental brokers have had to adapt to sudden changes in the industry. In early 2020, broker fees were banned under a slate of new rent laws. The fees were later reinstated after real estate groups including the Real Estate Board of New York (REBNY) sued the state.
Keyan Sanai, a rental broker at Douglas Elliman, said brokers are quick “to point the finger” at in the current housing crisis. “People are so angry right now, and they’re stretched so thin,” he said.
The real estate industry in the United States has already seen sweeping changes this year. A group of homeowners in Missouri successfully sued the National Association of Realtors and some of the nation’s largest brokerages, leading to a shift in how agents are compensated. Altering the system of broker fees in New York City adds another change for the real estate industry.
Between the N.A.R. settlement and the F.A.R.E. Act, “it feels like we’re under attack,” said Melinda Sicari, a broker at Douglas Elliman. “I feel like people are overlooking what we actually do on a daily basis.”
James Whelan, the president of REBNY, said in an emailed statement to The Times that the vote is “yet another blow to the rental housing market and will make it much harder for renters to find housing.”
“For months, the brokerage community has sounded the alarm on the FARE Act, raising concerns about the devastating impacts it will have on hardworking agents and New York City’s rental market,” he said.
Mr. Kowalczuk, a broker, outlined a potential scenario for tenants under the terms of the new bill: For an apartment priced at $5,000 per month, a potential broker’s fee of 15 percent of the annual rent would total $9,000. The rent, he estimated, will increase 5 percent every year. For a tenant living in the apartment for three years, the total cost — including the initial broker’s fee — would total $198,150.
If the landlord pays the broker’s fee instead, it’s a different story. Mr. Kowalczuk estimated they might choose to increase the rent between 7 to 10 percent to compensate. If a landlord raises the price of an apartment by 10 percent to $5,500 per month, and the rent is increased by 5 percent each year, a tenant living there for three years would pay $208,065 — nearly $10,000 more than if they had paid the broker’s fee and the lower monthly rent.
“The tenant starts to lose,” he said. (The bill would not affect the roughly one million rent-stabilized and rent-controlled homes in the city, which have capped annual rental increases.)
Chi Ossé, the New York City councilman who introduced the F.A.R.E. act, insists it will have the opposite effect. “It will place downward pressure on rents across the city by placing bargaining power in the hands of tenants,” he said in an emailed statement. “As tenants will be free to leave their current unit without encountering a large forced broker fee in a new unit, they can negotiate for better terms.”
Michael Corley, a broker and principal at Corley Real Estate, agreed that tenants will have more power and that rents will consequently see a dip. Without the barrier of a broker’s fee, he said, tenants will likely move more often, inventory will increase, and rents will become cheaper, meaning the city will “now achieve what the typical standard rental market looks like in every other city in this country,” he said.
Ed Josephson, a supervising attorney in the Law Reform unit of the Legal Aid Society, is less certain about the potential for rent spikes or dips. “It may depend on all kinds of things — the neighborhood, the kind of apartment, the rent bracket that it’s in,” he said. “You know, there’s a million variables here.”
But some brokers said the rental process will become less transparent and plunge prospective tenants into apartment-hunting darkness. Sarah Saltzberg, the principal broker at Bohemia Realty Group and a member of the board of directors at REBNY, said that brokers would pull listings from online platforms and social media. Renters, she said, would have to call brokers directly instead to inquire about potential listings.
“You will have to call lots of people, and I don’t think that’s what anybody wants,” she said. “It’s not what we, in the industry, want. It makes it much harder.”
For now, New Yorkers will play the waiting game. Should Mayor Adams sign it into law this month, the legislation could take effect in 180 days, which could be as soon as May 2025.
“It’s definitely an experiment that’s worth doing,” Mr. Josephson said of the bill. “And yet there are unforeseen consequences.”
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