By Gianna D’Alessio
New York renters temporarily rejoiced on February 4, when the Department of State clarified language from 2019 housing laws, effectively banning broker’s fees in New York City. Broker’s fees, which are sums of money prospective tenants are asked to pay towards a broker’s commission, are a large expense to new renters and could cost as much as 12 to 15 percent of one year’s rent. This decision was long-anticipated, after Governor Andrew Cuomo signed the Statewide Housing Security & Tenant Protection Act of 2019 and the Housing Stability & Tenant Protection Act of 2019 on June 14, 2019. This act states that “no landlord, lessor, sub-lessor or grantor may demand any payment, fee, or charge for the processing, review or acceptance of an application, or demand any other payment, fee or charge before or at the beginning of the tenancy, except background checks and credit checks.” The regulations also impose limits on security deposits and application fees.
Immediately following the DOS’s decision on the 2019 Acts, the Real Estate Board of New York and several well-known brokerages, including Corcoran and Douglas Elliman, filed a lawsuit against the DOS, charging them with unlawful rulemaking and overstepping their rights. Less than a week after the guidance, a temporary restraining order was filed in Albany County Supreme Court under Justice Michael Mackey, preventing the DOS’s decision from taking effect.
While many New York renters were initially ecstatic at the idea of not having to pay broker’s fees on future transactions, in the days following the decision, many residents faced mixed emotions. The more than 25,000 licensed real estate brokers in New York City were angered by the prospect of earning less for their hard-earned work, as were landlords whose responsibility it would be to pay broker’s fees going forward. On the other hand, low-income tenants welcomed the change, as they struggle to pay such large fees in addition to meeting already rising monthly rent payments.
Other New York residents did not know what to think, as industry insiders cautioned that this ban would inevitably cause monthly rent rates to increase because landlords would spread the cost of broker’s fees throughout the duration of a lease, instead of accepting a lump sum upon signing a lease. This insight was confirmed by a study released by PropertyClub, which found that citywide rents spiked by 6.1% on average in the week following the ban. Brooklyn saw a 6.4% increase in rents and Manhattan saw a 5.9% average increase in rents.
When asked if they would rather pay higher monthly rent rates or pay an initial broker’s fee, many Stern students agreed they would prefer to pay a fee upfront and have lower monthly rents. Langone student Julie Richardson stated, “I am currently looking for a new apartment, and as a part-time student, not having to pay a broker’s fee would be so helpful. However, I would rather suffer the consequences of having a third party involved up-front by paying an initial fee, rather than having the cost spread over monthly payments. For one, it is easier to track where the cost is coming from, not to mention, I will only be reminded of the burden once versus every time I pay rent!”
Photo credit: https://nypost.com/2018/07/11/study-confirms-the-obvious-nyc-rentals-are-really-unaffordable/
