Are broker fees actually banned in New York City? Not really. It all depends on how you’re approaching your apartment search.
Last summer, New York State passed two acts that were designed to help renters: Housing Security & Tenant Protection Act of 2019 and the Housing Stability & Tenant Protection Act of 2019. The pair of acts ensure protections for renters and prospective renters alike, including placing caps on the amount of security can be collected before moving in as well as restricting prices for application fees.
Recently, the New York Department of State issued clarifications to these two acts, which can be found on the DOS website. One aspect of these acts which has sparked tons of media attention was an update surrounding payment of broker’s fees.
Under these new protections, if the landlord employs the help of a broker to get an apartment rented, the broker’s fee, which was previously paid by the tenants upon moving in, will now have to be paid by the landlord renting out the apartment. In New York City, brokers could charge as high as 15% of the annual rent as a fee for their services.
What should be clear, however, is that if a potential tenant hires a broker to help them find an apartment, they will still have to pay the broker’s fee. The new acts also don’t work retroactively — meaning that if you’ve already been charged, you won’t be entitled to a refund.
After news broke about this clarification from the Department of State, many news outlets led with the idea that broker’s fees were banned altogether when that just isn’t the case. That’s caused confusion among prospective tenants and brokers alike.
“It’s going to be harder to explain to clients that they still will have to pay if they go through a broker,” said Tommy Kuzawa, of Laffey Real Estate. “It would just be another payment disclosure. But most people I talk to don’t understand that they’ll still have to pay if they use a broker directly. It’s going to be an uphill battle.”
But a prospective renter who is not working with a broker, yet is asked by the landlord to pay a broker’s fee, can cite the new guidelines as reason not to do so.
Renters throughout the city seem thrilled at the idea that they will no longer have to pay the broker’s fee should they not use a broker directly.
“A few years ago I paid a $2,400 on a $1,100 place, which seems kind of horrendous,” said one tenant, who chose to remain anonymous.
Another tenant, who previously lived in Ridgewood, Queens and has since moved to upstate Newburgh, found that the business practices of some renters prompted her to avoid apartments that have fee payment requirements upfront.
“I’ve always done non-broker fees – the only one I have ever paid broker fee was my current apartment because it was the best place we found. We paid $2,500 in just fees for a $1,250 apartment.” she said.
Some believe that this update in the law can help New York City residents who have struggled to find a home finally get one.
“There are over 92,000 homeless New Yorkers, and while there are programs to help them find housing, they don’t cover broker fees,” said Cea Weaver, campaign coordinator for Housing Justice For All. “I am worried that the fees will be passed along to the tenants somehow, when now it’s up to the agencies.”
“The Legal Aid Society lauds this guidance which reaffirms what we have been saying for a very long time: landlords should shoulder the costs associated with hiring brokers to represent their interests, not tenants,” said Robert Desir, staff attorney with the Civil Law Reform Unit at The Legal Aid Society. “This is more proof that The Housing Stability and Tenant Protection Act of 2019 is working to level the playing field, one which heavily favored landlords and the real estate industry for decades.”
Brokers, on the other hand, have their own concerns. Several agents were caught off-guard by the news, despite the fact that the initial acts were passed last year.
“When the original laws were passed six months ago, no one informed the agents, so [the agents at my company] were all caught off-guard when this news came to light,” said Kuzawa. “We were shocked. I don’t like how it was introduced – there was no debate, it was just made law. This is definitely going to put a bad taste in people’s mouths, and could deter people from entering the industry.”
Brokers are speculating that renters can start to see rental prices go up as a result of the law. They believe that landlords who are offering no-fee apartments will roll the broker’s fee into the rent price.
Many brokers are wondering how this will affect their income going forward, as many brokers rely on the commission to stay afloat.
Others believe that the move will provide more negative impacts than positive. Part of the fear also comes from making sure that the landlords will actually follow through with paying the broker fee going forward.
“I don’t think they thought this through. If the broker is going to be paid by the landlord, where’s the paperwork that holds the landlord to it?” said Janet Adler, Janet Adler Realty Inc. “There is a lot of guessing going around.”
Regardless of how the masses feel, some are certain that this ruling won’t go down without a fight from brokers, or even from those in charge.
“It’s fairly easy to expect a probably protracted legal action ahead, one that will attempt to challenge the ruling,” said Aleksandra Scepanovic, managing director of Ideal Properties Group. “At the end of that action lays either a law that forces landlords to carry the lion’s share of the financial burden of a rental process in New York City, in contrast to the natural laws of supply and demand. Or alternatively, we go back to real estate agents being able to make decisions on their own financial well-being and we allow the laws of supply and demand dictate in whose court the payment of a brokerage fee lays.”
Additional reporting by Alejandra O’Connell-Domenech