Renters No Longer Pay Landlords’ Brokers’ Fees: Positive Predictions for Agents

In a reinterpretation of 2019’s rent reform laws, New York State declares landlord will now pay fees

Photo by hettie (CC BY-ND 2.0) – https://flic.kr/p/boqnkf

(ALBANY, NEW YORK)— On Tuesday February 6, Albany issued a stunning new decision: landlords’ brokers will no longer be able to collect their fee from tenants. Instead, landlords will pay the broker’s fee if they were responsible for requesting the broker’s service. The sudden move has shocked agents and lawmakers across the city.

The spirit of the new law is that landlords, who have a vested interest in filling their empty apartments to collect passive income, should be paying the brokers they hire, rather than passing the expense along to potential tenants. Currently, a landlord can hire the broker to do the leg work to find a tenant, and then the tenant will pay the broker’s fee. A comparable situation in reverse might be that if every time a tenant hired a broker to help them find an apartment, the landlord owed an additional hidden fee to pay the tenant’s broker—that’s the kind of broken system that the new law is aiming to curb.

To be clear, brokers will still collect a fee from tenants if the tenant hires a broker to help them find an apartment (as many still do). But tenants who, for example, scope out the perfect place on StreetEasy only to find that they owe an additional fee equivalent to 15% of their yearly rent are off the hook.

A landlord’s agent is still entitled to full compensation from the landlord they represent. No broker must or should walk away from a deal uncompensated—they will just be paid by a different party.

What Brokers Are Saying

As tenants gleefully refuse to pay fees, brokers despair. Agents fear that landlords will hard-pressed to pay up when they have long been accustomed to being waited on hand and foot for free.

Jared Antin, director of sales at Elegran, told The New York Times, “If [the new law is] to minimize the cost to the tenant, it just changes when the cost is due. Instead of upfront, they will pay it monthly.”

Compass broker Michael J. Franco told Curbed NY, “Shifting the burden of commissions on landlords is only going to result in increased rents by landlords who will likely build the commission cost into the rent. It will also incentivize agents to cease working with landlords if a commission isn’t payable for listing the property.”

Reggie Thomas, REBNY’s senior vice president of government affairs, told New York Daily News, “If enforced, this guidance would result in higher prices for New Yorkers as building owners include commissions into rents and dramatically cut the incomes of tens of thousands of agents who provide a valued service in helping people find their new homes.” REBNY promises to vigorously protest the interpretation, implying that they will pursue further legal action.

What’s the Real Impact?

In short, life goes on. New York is one of the only cities where the tenant pays for a service that benefits the landlords, and yet brokers still thrive in other localities. The system has persisted for years because the tight demand in the NYC rental market has long guaranteed that landlords have most of the power. Lee Lin, expert at Renthop, told Gothamist in 2016 that landlords love the old system because “they can email 50 firms, have those firms all fight over clients and spend money on marketing, and only one agent earns the fee at lease signing”—which the tenant pays.

Many landlords are, strangely, invoking tenant’s interests, claiming that the policies will cause rents to rise in the city, to the detriment of tenants in the long term. This seems like more of a threat than a good-faith warning, since landlords are directly in control of how much their tenants’ rent rises: landlords are not “forced” to raise rental prices by any recent regulations. On average landlords in NYC net around $80,000, which is above the average income in the City—and that’s just passive yearly income, without accounting for the massive financial privilege of owning a multi-unit property in one of the most expensive cities in the world. If rents rise, landlords can expect to see their units sit on the market for longer—or they could simply pay a broker’s fee, which, as they have pointed out to disgruntled tenants for years, is only about 15% of the yearly potential income of a leased apartment (that’s roughly the same opportunity cost as an apartment that sits vacant for two months). This also provides incentives for landlords to treat tenants well: the longer a single tenant stays in place, the less often landlords will face fees.

Rent regulations passed in June offer permanent rent protections to tenants of rent-stabilized apartments. Rents are capped at a 1.5% increase for tenants with a year-long lease and a 2.5% increase for tenants who sign a two-year lease. These tenants have nothing to fear. You can find out if your home (or potential home) is rent stabilized here.

Unprotected renters unfortunately might still fear retaliatory rent-raises from landlords, unless Albany continues to expand protections in New York. However, brokers actually have much to gain from this outcome. If brokers continue to request a steady commission rate between 8-15% of the annual lease, the standard price that tenants currently pay, they could stand to collect even higher fees from a landlord who chooses to raise rents.

Who’s to blame?

Let’s be clear—while lawmakers and tenants’ rights activists are bearing the brunt of the anger for pushing the new laws, brokers despair that landlords won’t want to pay their fees. Even wealthy tenants find themselves easily exploitable when basic needs like housing are at stake; by contrast, landlords might attempt to negotiate on fees that desperate tenants have born without a choice (although not without complaint) for decades.

The new law could break the longstanding alliance between landlords and brokers. Brokers can always refuse to represent landlords who won’t pay the full fee, instead of turning away tenants who can’t or won’t. Brokers might even see more business from renters. A tenant who knows they won’t have to pay their landlord’s broker fee in addition to their own might be more willing to hire a broker to help them navigate the infuriating and competitive NYC rental market.

Brokers who fear the non-cooperation of landlords should hold firm. Their services are still invaluable, even if bargain-seeking landlords pretend otherwise. Andrew Barrocas, founder of the brokerage MNS, as quoted in The New York Post, said: “I’m leasing thousands of apartments a year and all of these landlords, if they thought they could do it better themselves, they would.”

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