New York may end brokerage fees for apartment rentals

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Photo-Illustration: Intelligencer; Getty Images

For a brief moment in New York, shortly before the devastating COVID outbreak, tenants received a rare and unexpected gift.

The New York State Department ruled in February 2020 that landlords, not tenants, must pay broker fees when renting an apartment. Payments, which can range from one month’s rent to 15% of annual rent or even more, have long been the bane of tenants across the five boroughs who face this unique burden; few other major housing markets in America spare landlords brokerage fees.

The State Department had interpreted a provision of the sprawling housing development passed by the state legislature in 2019, which was the first in decades to grant significant new protections to tenants. Less than a year later, it emerged that tenants across the city had received the equivalent of manna from heaven, a way to potentially save thousands of dollars when looking for an apartment.

It shouldn’t be. A judge blocked the decision from taking effect, siding with the Real Estate Board of New York, the main industry lobby that had filed a lawsuit along with other industry interests. The provision was then completely reversed. Since then, tenants have started to pay high additional fees to rent apartments again. A bill to ban the practice is moving forward in Albany but won’t pass until 2023.

Renters in San Francisco, Chicago, Nashville and almost everywhere else aren’t paying anyone to show them an apartment – Boston, industry watchers agree, is one of the latest brokerage fee holdouts with New York. Owners and management companies pay the costs. While buying or selling an apartment is a complex process that requires the intervention of several brokers, renting in the age of the Internet is rather simple. A potential tenant goes to a website like StreetEasy, browses through photos, and books a viewing with a broker. If the tenant likes the apartment, the documents can be signed quickly. Tenants, in most cases, do not choose their brokers and are asked to collect an invoice for a service they do not need.

In a moral real estate market, tenants would not be asked to pay for services they do not need or even ask for. New York City is always a challenge, with demand — outside of a time frame during COVID — perpetually high. Now, however, he’s overheated to a degree rarely seen in his history. Manhattan’s median rent has exceeded $4,000 per month. Bidding wars for rentals, once unheard of, are now becoming commonplace. Tenants who could, with some ease, rent apartments free of charge in the five boroughs now find themselves having to pay much more more than a month’s rent in brokerage fees to secure an apartment. Fifteen percent of annual rent is becoming the going rate for the most sought-after apartments, with demand high enough that brokers may simply send video tours rather than offering in-person viewings.

Brokers and owners now have every means of pressure. And until the law changes in Albany, that will continue to be the case. Pressure on rentals should ease a bit in the fall as fewer summer interns and seasonal workers buy apartments, but the city’s supply is still limited enough – the city needs to build many more housing – to keep demand high. The growth of remote work has attracted more affluent tenants who want to live in all five boroughs. Landlords, meanwhile, are intentionally keeping rent-stabilized housing off the market in an apparent effort to get Albany to change the housing laws of 2019 to make it easier, once again, to charge much higher rents. after the renovation of the apartments.

Democrats control both houses of the state legislature, and pro-tenant progressives have more clout now than they ever have before in Albany. But the developer-owner lobby is influential and savvy. Progressives still can’t pass the eviction bill for good reason, a sweeping change to statewide housing law that would make it much harder to evict tenants and rapidly increase housing rents at the time of renewal. Lawmakers say banning the practice of tenants paying brokerage fees should be an easier way, but it will likely meet quick resistance from real estate brokers who make a large part of their business from collecting rental fees. . Two Democratic Socialists, Jabari Brisport and Zohran Mamdani, carried the bill to the Senate and the State Assembly respectively. In the Assembly, where Democrats tend to be more moderate than their Senate counterparts, the bill actually rolled out of committee and nearly got a floor vote before the legislative session ended in June. In the Senate, the legislation still needs to be pushed further.

Proponents of New York’s current system say the cost of brokerage fees will simply be passed on to tenants through higher rents if the practice of charging tenants is prohibited. Some brokerages may also close as small landlords are reluctant to pay brokers to show apartments. Yet nearly every other major U.S. city has managed to maintain relatively healthy real estate markets without charging tenants extra fees. For working-class and middle-class tenants, paying an extra month’s rent just to get into an apartment is a prohibitive burden. The wealthiest tenants of such a system can easily compete for the best apartments. Market pressures, rather than brokerage fees charged to landlords, will likely drive rents in the future. When demand dropped dramatically in 2020 and early 2021, nearly all landlords paid broker fees and offered other tenant incentives like reduced and free months’ rent. Tenants gained leverage that they would later lose when the pandemic subsided. By 2023, the real estate market may be different than it is now. If Albany follows through and finally allows New York to join the rest of America in the future at no cost, the Tenants will have a rare victory they can cherish for years.

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