The vast majority of New Yorkers are renters who contend not just with sky-high rates but often astronomical broker fees as well. Unlike most other places across the nation, renters can be charged those fees even if the landlord hired the broker.
A new bill from Councilmember Chi Ossé aims to shift that cost to whoever hired the broker, a move that would result in fees being pushed back onto the landlords. The real estate lobby is fighting the measure.
Here’s what you need to know about the proposal:
What’s in the bill?
Ossé, a Brooklyn Democrat, introduced a measure in June that dictates that whichever party hires a broker, either tenant or landlord, is responsible for paying them. Under the current system tenants pay the one-time broker fees when they move into a new rental even if they were hired by a building’s landlord or management company.
“In every other transaction, the party who hires a service pays for the service. New York is unique among major cities in America in having tenants often paying the fee for a broker’s services,” Ossé said in a statement. “This bill is simple and fair in assigning that cost to whoever sought the service.”
Why are broker fees so high in New York City?
There are no caps on broker fees in New York. They often cost thousands of dollars, usually amounting to about 15% of the annual lease. That’s typically in addition to a security deposit and first month of rent that tenants have to fork over upfront.
Ossé pointed out in a recent memo that “tenants are often forced to forgo their own representation as they are forced to pay for another agent they did not hire. So a broker who works with a tenant for weeks to help them find a home often gets stiffed when the landlord’s agent insists on collecting the full fee.”
Potential renters can also hire brokers themselves to help them find apartments.
Why is the bill so contentious?
The real estate industry has largely come out against the bill, with the Real Estate Board of New York attempting to block the measure, as the Daily News previously reported.
The real estate board said the bill would negatively impact brokers, undermining their ability to earn a commission while also raising rents for tenants. Some brokers have expressed fears that if landlords are forced to pay their fees they may decide not to use brokers at all.
“It undoubtedly would impact thousands of residential rental brokers and agents from being able to, number one, earn a living and, two, to be competitive,” Ryan Monell, the board’s Vice President of Government Affairs, told the News. “Overall, this bill would just undermine the existing market in a way that doesn’t benefit renters or agents and brokers.”
But housing advocates have long argued that the current system can be unfair and discriminatory, and hefty broker fees pose obstacles for working-class New Yorkers.
The Community Service Society of New York recently sent out a letter to several councilmembers in support of the FARE Act, describing the current approach to broker fees as “unconscionably regressive.”
“It makes total sense, it’s the way nearly every other city does things,” Samuel Stein, a housing policy analyst with the organization, said of the bill. “And there’s a lot of problems with the system as it exists that we think this would correct.”
Will it lead to higher rents?
It depends whom you ask, but both the real estate board and Ossé seem to agree landlords having to foot the bill for broker fees could lead to higher rents in some form.
“In many instances, prospective tenants would just end up paying more in their base rent, which means higher costs year over year,” Monell predicted.
He said the bill would “raise rents for many tenants” by potentially shifting units to “no fee” rentals where the fee is instead baked into the rent.
But according to Ossé, “Even if some portion of the cost were passed onto tenants as rent, it would be distributed over the course of 12 or 24 months, alleviating the prohibitive upfront costs.”
Such changes could only apply to market-rate apartments, as raises for rent-stabilized units are set by the Rent Guidelines Board.
“We imagine that the market for brokers in the city and the rental market could see slight adjustments with the passing of this bill,” Elijah Fox, Ossé’s director of communications, told the News. “But ultimately there’s this valuable service that’s being provided, and we see its value because we see year after year people across New York City continue to seek out and hire and pay for these services. We just want to make sure that the market is fair.”
Stein argued that in the case of market-rate apartments, landlords are already charging as much as they think the market will bear.
“It could be that there are some landlords who are charging only what it costs to operate the building plus a small profit, and those people will now raise the rent because it costs a little bit more,” he said. “I think that is an endangered species if it exists at all.”
What’s next?
Ossé is currently attempting to move the bill through the council, though it has run into roadblocks at the committee level; a majority of the City Council already supports it, with 29 co-sponsors as of Tuesday.
“The numbers keep growing,” Fox said.
