New study shows that broker fee ban may actually benefit tenants

Photo by Beth Dedman


The local real estate industry panicked when the New York Department of State unexpectedly banned broker fees for New Yorkers renting an apartment and predicted a dramatic increase in rent costs — but a study from PropertyClub shows that tenants may actually save money in the long run. 

New Yorkers often use brokers to find and fill apartments in the competitive city market and can often pay a broker fee as much as 15% of their annual rent. In the past, tenants would pay the fee prior to moving into their apartment, even if the broker was hired by the landlord. 

According to an addendum added to the Statewide Housing Security and Tenant Protection Act of 2019 a couple weeks ago, “a ‘landlord, lessor, sub-lessor or grantor’ is now prohibited from collecting an application fee greater than $20.00,” which means that landlords must cover the expenses unless the tenant is the one who hired the broker.

Experts predicted that this would cause landlords to simply increase rent to cover the broker fee, but the study from PropertyClub shows that even if rent does increase, renters will ultimately save more money. 

Researchers at PropertyClub combed through 7,000 no-fee listings across their own database and the databases of Corcoran, Douglas Elliman, Compass and StreetEasy to assess the damage from the broker fee ban. 

According to their study, rent has increased by about 6.1% already, with the highest percentage changes occurring in Brooklyn at about a 6.4% increase. About 10.6% of the properties from the study showed an increase in rents of 10% or more, while close to 2% of properties showed an increase of over 15%. Over 70% of properties saw a rise in price equal to less than one months’ rent, or 8.33%.      

Despite these increases, renters should be able to save money because state law has limits on how much the rent can rise. The comparative expense of the increased rent is much smaller than the expense of the broker fees. In Battery Park City, for example, renters will no longer have to pay an average of $10,000 in broker fees and will instead wind up paying about $2,600 in increased rental costs per year. This results in a savings of more than $7,000. In Midwood, renters will go from paying nearly $4,000 in broker fees to about $2,000 in increased rent costs. This still results in a savings of $2,000.

The study also predicts that the ban will result in landlords offering better deals on long-term leases, hesitating to hike up the rent and ultimately reducing their initial knee-jerk price hikes. 

The broker fee ban will likely cause landlords and brokers to lose money, but this ban is financially beneficial to renters and reflects the goals of Statewide Housing Security and Tenant Protection Act of 2019 that favored tenants in NYC. 

Two of the biggest real estate industry agencies in the city, REBNY and the New York State Association of REALTORS, Inc., have already filed a lawsuit against the New York Department of State. This resulted in a temporary restraining order against the DOS’s addendum, at least until the court rules to lift the order. 

Rossana Rosado, the New York Secretary of State, will represent the DOS at the Supreme Court of the State of New York to respond to the lawsuit March 13. 

The PropertyClub study is available at https://propertyclub.nyc/article/new-york-city-renters-stand-to-win-big-if-landlords-are-required-to-pay-broker-fees