New York City Rental Brokerage Fee: Why It's So Huge and How To Avoid It

Renters in New York are forced to pay brokers up to 15% of their annual rent, regardless of whether they helped them find an apartment or not. After several lawsuits demanding the repeal of this rule, the courts sided with brokers and this week upheld the legality of such fees. About who and how pays them, the publication told in detail. New York Times.

Brokerage fees are a large additional amount that tenants have to pay in one of the most expensive housing markets in the United States, in addition to the actual rent and collateral.

The brokerage fee is a one-time payment that usually ranges from 10 to 15 percent of the annual rental value. This amount is paid by the tenant to the broker named in the apartment rental ad, regardless of whether the broker helped the tenant find the apartment and sign the lease or not. For example, for an apartment for $ 2 per month, the brokerage fee can be as high as $ 500 (4% of the annual rental amount).

As a result, together with the first month of rent and a deposit (usually the amount of a monthly rent), the tenant has to pay a huge amount to get the keys to the coveted apartment. In the case of the above example, $ 9.

This week, a court in New York state confirmed the legality of brokerage fees, which means that the market situation will not change in the near future.

What was this lawsuit

Shortly before the pandemic hit the city, the New York State Department, which interprets the laws, said brokerage fees should be banned under the 2019 State Legislature's tenant protection laws.

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The announcement stunned brokers, tenants, and even some lawmakers who left out the brokerage fee cap when laws were passed in 2019.

As a result, brokerage fees were banned for several weeks in February 2020 - the state announced that they should not be collected from tenants until a court decides their fate. The court initiated the New York Real Estate Board and eventually won. Therefore, brokerage fees are now back in effect in New York.

Why is there a brokerage commission at all

Before the internet and smartphones, the rental market was really driven by the labor of brokers or homeowners. They needed to advertise housing for rent in as many publications as possible, answer calls, organize displays of apartments and prepare all the necessary documents. This required a significant investment of time and effort, so brokers received a commission in the form of a lump sum.

But today such a system seems archaic, because any potential tenant can find an apartment on the Internet, and in many cases take a virtual tour of it from his phone without ever meeting with a broker.

However, potential tenants who find their own apartment often have to pay the same brokerage fee as those who turned to a broker for help from the very beginning.

Development groups defend brokerage fees, arguing that brokers offer significant resources to tenants and without commissions, they will have no income.

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Critics say such fees create an additional barrier for those wishing to move to New York, especially for young people and people on low incomes.

Some apartments can be rented without commission

Apartments for rent are divided into two categories: fee (with commission) and no-fee (no commission). In fact, the commission is charged in both cases, but the difference is who pays it.

In an apartment without a commission to the broker dealing with this apartment, the landlord pays. He may simply pay for it out of his own pocket, or he may raise the rental price a little to cover the expense.

During the pandemic, a surplus of vacant apartments led many landlords to offer “no commission” apartments in the hopes of attracting tenants.