New Law Changes New York City's Brokers' Fee

By Madeline Reilly

Host Intro: The costs of housing in New York City are notoriously high. And added on to rents are fees paid to brokers who handle the apartments, which can be surprisingly high. But starting this June,  the costs of renting through brokers will be limited by law. Madeline Reilly reports on the possible effects of the new rules governing broker fees.

REILLY: Currently, when you rent an apartment in New York City through a broker, the broker charges a fee that the tenant pays. This fee can range from one months rent, to 15% of rent for an entire year, paid up front with signing of the lease, along with first and last months' rent. The result can be a surprisingly high cost. Jenaya Jubeck is a Broker in New York. 

JUBECK: There was rather an infamous ad out on StreetEasy earlier this spring that advertised for, I think, a rent of $2,000 for a rent stabilized apartment, a $9,000 broker fee right in the listing so that type of activity, you know, they're being transparent about the expected fee, right? 

REILLY: These kinds of brokers fees can be a significant burden and a hurdle to finding a living space in the city. In December, the city council passed the  Fairness in Apartment Rental Expenses Act, or the FARE ACT, to try to limit costs of brokers fees charged to tenants. When the law goes into effect in June, renters will no longer be directly charged for the fees. Jonathan Miller is a real estate market analyst and appraiser. He questions the economics of the new rules.

MILLER : The perception with this the FAIR Act is that the the tenant won't have to pay that fee anymore. And so, you know, the the idea is that the tenant is going to save a lot of money because they don't pay the fee. But that is inherently false, because that's how, not how markets work,.

REILLY: Miller says that while the FARE act will limit broker fees, the costs may still find their way to the renter.

MILLER: If the tenant no longer has to pay the the real estate agent for their services, then what this law does is effectively make the landlord pay that fee. The landlord is not going to eat the fee. So the rental prices will go up about the same amount as the costs they will incur and that is going to become the new market level.

REILLY: Another possibility after the FAIR act goes into effect is that landlords will simply cut brokers out of the equation, preferring to market the apartments themselves. Jubeck says she and other brokers currently offer centralized listings of large numbers of apartments. 

JUBECK: this new FARE Act would therefore affect the apartments that I'm able to advertise. So, the apartments that I currently advertise that would require any clients of mine to pay a fee, I would no longer be able to advertise.

REILLY: Jubeck says its possible there could even be a shortage of listings, as Brockers will work solely through referrals with particular landlords. Jonathan Miller agrees that the rules may have uncertain consequences.

MILLER: So effectively, the tenant is paying the same. I have no opinion of whether this is better or worse than the old way. It's just from an economic standpoint, this doesn't save the tenant, or, you know, the renter any money

REILLY: The FAIR act will go into effect in June…IF it can survive court challenges. The Real Estate Board of New York, which represents brokers, sued to block the law back in December. Meanwhile, tenants advocacy groups say they are waiting to see the effect of the new rules, and then may take action through the courts. Madeline Reilly, Columbia Radio News.