In the last few days, New Yorkers have been inundated with headlines like “Renters Don’t Have To Pay Brokers’ Fees Anymore” and “Surprise for New York Renters: No More Broker Fees.” Yes, it’s a happy day for New York’s 5.6 million renters, or, more precisely, all its future renters and movers: The death of broker fees.
New York has banned real-estate brokers from imposing a fee on apartment renters https://t.co/ogo8xPWEDR
— The Wall Street Journal (@WSJ) February 6, 2020
But despite the hoopla and the plethora of juicy articles, the story isn’t that simple. The change will be a boon to some, won’t affect others, have a delayed bearing to many and might even negatively strike quite a few. When you dive deeper, how can you discern what the impact of the new (or rather clarified) New York broker fee law is to you?
But first… a recap
As political activist and perennial mayoral candidate Jimmy McMillan has informed us many times, “The rent is too damn high” in New York. That’s why in June of 2019, the New York State Legislature passed a sweeping series of affordable housing statutes. These were created to help protect tenants and toughen rent regulations, including limiting charges for application, background and credit fees to $20 and topping security deposits at the equivalent of one month’s rent.
But on Jan. 31, the New York Department of State issued a clarification to one section of the laws, specifically those about broker fees. The clarification specified, “a landlord’s agent cannot be compensated by the prospective tenant for bringing about a meeting of the minds,” a fancy way to say a landlord can no longer pass their fees from their broker onto a new tenant. Renters rejoiced, landlords worried and brokers protested in a divided city.
What exactly is a broker fee?
Broker fees are a price billed to a landlord for a third party to do all the work of filling a rental unit. The tasks include working on the landlord’s behalf to list an apartment, find potential tenants, show the property and take care of all the paperwork and financial transactions so the property owner doesn’t have to deal with it all. About half of New York’s rentals are through a landlord’s broker, what’s known as an “exclusive.”
Until the new law was passed (and clarified), the fees charged to the landlord were more often than not passed onto the new tenant as part of up-front charges. These fees regularly ran from the price of one month’s rent to 15 percent of an entire year’s total, paid in a lump sum before move-in by the new tenant to the landlord.
For example, the average rent for a two-bedroom apartment in Manhattan is $5,371 a month, according to Apartment Guide and Rent.com. That means an average renter would be shelling out nearly $10,000 in broker fees before opening the first moving box.
Reason you know you are a real New Yorker===>The most expensive thing you’ve ever paid for is the broker’s fee on an apartment you’ll live in for less than a year.
— Gnama Kande (@liveN2love) November 23, 2017
What does this mean for you (and everyone else)
So, the broker fee pass-on was outlawed and New York City (and State) renters celebrated. No longer will you, the tenant, be liable for your landlord’s fees if you find your dream apartment yourself online, through word of mouth or just by dumb luck. But what else does this actually mean for you?
The bottom line is, landlords are now liable for covering their own fees. But don’t celebrate quite yet. There are exceptions and consequences of every legislation.
Will my rent go up?
As happens in most circumstances where legislators shift the burden of payment from the customer to the seller, the fear in the new regulation is that landlords will simply take whatever they have to pay in broker fees and bake it into the rent price itself. While the new renter would avoid paying the broker fee up front, they would be paying an increased rent at move-in and every subsequent month.
And to compound the problem, while a broker fee is a one-time charge, the increased rent has the opportunity to compound month after month, long since surpassing what the price of the broker fee would have cost. In the end, for many, the elimination of the one-time broker fee will translate into a higher rent every month, outspending the broker fee’s cost in a short amount of time.
Just so we understand. This means rent prices will go up 🙃 a landlord is never going to truly cover a broker’s fee, you just get to pay it every year in your rent again and again. https://t.co/lOQB2T2wiO
— Erin Ulman (@ulman_erin) February 7, 2020
It’s nearly inevitable that this will occur until the market pushes back. Then, the landlords and property owners that find the most creative ways to recoup fees while not pinching future tenants will come out on top.
What about rent-controlled apartments?
The possibility of a landlord baking the cost of broker fees into the rent is certainly a concern for many new renters. But if you’re fortunate to lease a rent-controlled apartment, where the price of rent is regulated by state law, you’re protected from such deferments. Approximately 1 million apartments in New York — about 40 percent of all units — are legally rent-controlled.
In the case of rent control, if you’re lucky enough to find one available, the landlord will most likely have to eat the additional costs of broker fees, saving you from the extra charge.
I said it once!!! I’ll say it again!!! Monica and Rachel could afford their apartment bc of NY rent control. They were illegally subletting Monica’s Aunt’s apartment and the rent was the same from like the 60’s. Thank you for coming to my Ted Talk
— cc (@Iavender_menace) April 22, 2018
If you hire your own broker
If you hire your own broker (not associated with your landlord) to help you find an apartment, negotiate rents for you, file paperwork, etc., you’re still liable for the fees they charge. The broker fee relief only covers fees charged to your landlord that their broker charges them, which your landlord charges you in return, not ones you incur yourself.
What if I just recently paid a broker fee?
You may be thinking to yourself, I secured my new apartment before the January clarification, but after the law went into effect in June of last year. I surely deserve to have my broker’s fee refunded, yes?
Not so fast.
After a bit of confusion, the New York Department of State declared on Feb. 6, “This is not intended to apply retroactively,” putting the kibosh on a slew of refunds.
I just paid a $5,250.00 broker fee in July so this really stings. 😒
— Lauren Paul (@LaurenMP23) February 6, 2020
But as the situation is still new and fluid, some tenants’ rights attorneys believe that’s not the end of the story. Judith Goldiner, an attorney with the Legal Aid Society, told Gothamist, “[The Department of State] can’t say the law goes into effect later than when the legislature says it does. They’re not the ones making law.”
Using the broker fee rules to your advantage
Under the old system, if you, as the apartment-seeker, had a broker, and your broker found you an apartment who had a landlord also using a broker, an “exclusive listing,” the common practice was to split the broker fees by half. Now that the landlord can’t extract the broker fees from the renter, it’s possible for the renter to use the system as leverage for a reduction in fees from their own agent.
When negotiating your initial contract with a personal broker, the new law gives you a bit of leverage to ask for what would have, in the past, been the standard 7.5 percent split … only you’re not splitting it with anyone. It may not always work, but it is certainly worth the try.
So a woman and her husband that sat behind us just paid for our meal ☺️ (we were talking about how expensive the brokers fee was 😂)
— Tyler 🌚 (@tyler_ayala5) February 10, 2018
Unintended consequences (the good)
The new, updated law allows for much more financial transparency. Fees and leases and documentation can be confusing for the average renter. Knowing the limitations now in place, this law will help to expose dishonest brokers seeking to take advantage of renters by overcharging.
As well, the law’s clarification could be a boon to some of New York’s 92,000 people who are facing homelessness. Homeless New Yorkers often get pushed from poor housing to poor housing, and in many cases, while they can afford a security deposit and a monthly lease, the downpayment of a large brokers fee on top of other fees can be prohibitive.
Unintended consequences (the bad)
The enforcement of the law, and the increase in financial burden, may push landlords to increase apartment “warehousing.” Warehousing is where a landlord or property owner — often in rent-controlled buildings — decides it’s more financially viable to leave an apartment or sets of apartments vacant or prepare them for conversion to condos than to rent them out. If the sustainability of a rental is already borderline, then the added broker fees may push them to take the units off the market.
The bottom line
So is the clarification of the new broker fee legislation good for you as a renter? At this point, it does seem like a crapshoot. It will certainly benefit some and lead to higher rents for others.
Of course, if you’re already renting, this serves only as a what-if from when you moved in, especially if you’ve already paid a broker fee in the last six months. But eventually, the benefits or detriments will come your way if and when you move apartments.
However, if you’re looking for a new apartment now, it’s two sides of the coin. Those moving into one of NYC’s one million rent-controlled apartments should be able to shed broker fees from their move-in costs. Conversely, for the majority not moving to rent control, you could easily see the offset baked into your monthly rent, eventually more than you would have paid in the first place… at least until when or if lawmakers plug that loophole.
As this is a fluid situation, the tables could flip at any time at the whim of the market or a new majority in Albany. But for now, this feels like a win for NYC renters’ rights.