NYC tenants will no longer pay brokerage fees

Regulators unexpectedly banned brokerage fees in New York, which make up 15% of the annual rent. Opponents believe that this could destroy the brokerage industry. This publication writes The New York Times.

To rent housing in New York, tenants have been forced to resort to intermediaries for many years. Thus, brokers almost completely control the process of renting apartments. The fee they charge for their services can reach 15% of the annual rent, usually paid by the tenant at a time before he enters the apartment.

New York City is one of the few cities in the country with a brokerage industry that has such financial leverage over how people rent apartments, the source said.

However, on February 4, the situation changed - regulators unexpectedly banned brokerage fees. Thus, along with the adoption of the housing rental laws last year, New York City has moved even further as a national leader in creating tenant-friendly rules.

Brokers can still charge a fee, the state’s revised rules say, but it should be paid by the landlord, unless the potential tenant has hired them to help find the apartment.

Reaction to innovation

The new rule, buried in the legal guide for last year’s rental law, took lawmakers, many landlords, and brokers by surprise.

The influential trade group The Real Estate Board of New York immediately threatened to challenge it in court and urged its members to protest. “This is a major concern for our members,” said Reggie Thomas, senior vice president of the board of government affairs. "This business concerns everyone."

Brokers warned that the new rules will simply increase the amount of monthly rent for tenants, as many landlords are likely to pass the cost of the rent onto tenants by raising their rent. “What was the purpose of this? Said Jared Antin, Sales Director at Elegran. - If we are talking about how to minimize the cost for the tenant, then it will simply change. Instead of paying in advance, they will pay monthly. ”

It is noted that state laws limit the amount of rent for 1 million apartments with regulated rent. There are also more than 900 apartments at market prices that are not regulated.

Tenant lawyers have supported the new brokerage commission rule. According to them, it helps to influence the uneven playing field in the real estate market. “These are important protections for tenants and it’s time we have them,” said Michael McKee, Treasurer of Tenants PAC.

New arrivals in New York have long been disappointed that they have to pay brokerage commissions even when they find an apartment on the Internet. But unlike most US cities, landlords often prefer not to work directly with tenants and not sell their apartments on their own. Instead, they hire a broker.

For several months, real estate experts feared just such an interpretation of the new housing rental laws that encouraged Democratic lawmakers.

How it will work

New laws aimed at protecting tenants and tightening rent regulation stipulate that tenants may be charged a fee of not more than $ 20 when applying for an apartment, including a biography and credit rating.

Laws on rental housing adopted in June-2019 also limit the amount of the security deposit to a monthly fee, which further reduces the amount of payment that tenants usually have to pay before they are given the keys to the apartment. However, it is not clear from the wording: does this 20 percent limit apply to brokerage fees, or do lawmakers intend to abolish the practice of paying brokerage fees to tenants. For an apartment worth $ 2 a month, a broker can request up to $ 500 in a lump sum payment based on a 4 percent fee.

In their latest guide, state regulators explained: this limit does apply to brokerage fees, effectively prohibiting this practice. Now, the burden of paying brokerage fees falls on the lessors, or they can sell or rent their property themselves without resorting to the services of brokers.

On the subject: 10 Brokerage Tricks for Renting New York

Martin added that the ban will disproportionately affect the owners of small buildings, which, as a rule, transfer work on showing apartments and finding tenants to real estate intermediaries.

Given the prohibitively high rents in New York, brokerage commissions have become the goal of progressive lawmakers seeking to lower the cost of housing. Last year, for example, board member Keith Powers introduced a bill to limit brokerage fees on monthly rents.

Some tenant activists were delighted with the new leadership, saying it will help lower barriers to finding and renting housing for many tenants and possibly reduce the growing number of homeless people in New York. “This is about relocating 92 homeless people,” said Cea Weaver, coordinator of the Housing Justice for All campaign, a nationwide coalition of tenants advocating for new rental laws. "Hopefully this will make it easier for people to move from low-quality housing to quality housing."

However, Weaver noted that she was skeptical that the real estate industry would follow new recommendations that could change. According to her, the best way to protect tenants is to pass a law on eviction for a good reason. This, in her opinion, will further complicate the task of landlords to increase rents and evict tenants.

For apartments at market prices, the cost of brokerage services may still decline, but tenants of regulated apartment rents may not be able to pass these costs on to tenants. The increase in these rental rates is set by the government, the report said. Today, rented apartments in New York City are home to around 2,4 million people.

Moreover, according to Martin, the changes could lead to thousands of real estate brokers losing their jobs. According to the State Department of New York, as of the beginning of 2019, there were more than 25 licensed real estate brokers in the Big Apple.

Eric Benaim, CEO of Modern Spaces, a brokerage firm with around 100 employees, said the change is painful for agents who make a living through brokerage fees. According to him, regulators are at such a high level that, taking advantage of this, they punish those who work in real estate.