Yesterday, New York state regulators announced that renters may no longer be charged broker fees. Broker fees in New York City typically run between 12 and 15 percent of the annual value of a lease, and provide a substantial source of revenue for real estate brokers. Moreover, approximately two-thirds of New Yorkers rent their homes, so the rental market itself accounts for a huge portion of the overall industry. Brokers will still be able to recoup a fee in rental deals, but it will now have to be paid by landlords. [1]
Responding to the news, brokers suggested that these costs will likely be passed on to tenants by landlords in the form of increased rent. Of course, the new limits to rental increases (2% a year maximum) as a result of last year’s landmark tenant legislation could theoretically prevent landlords from passing on much of this cost to tenants who do not live in market-rate rentals. For broader context, NYC is one of the only cities in the United States (along with Boston) that had broker fees paid by tenants rather than landlords. [2]
The rule change is yet another decision stemming from the long and complex legislation passed last year—proof that the law will require significant interpretation by regulators as well as the courts. As of today, many important players in the industry as well as tenants’ organizations had yet to comment, as ambiguities remain over the full implications of the rule change.
[1] Haag, M. (February 2020) Surprise for New York Renters: No More Broker Fees from NY Times https://www.nytimes.com/2020/02/05/nyregion/nyc-landlord-rental-broker-fees.html Accessed February 6 2020
[2] Carlson, J. (March 2016) NYC Is One Of The Only Cities Where Renters Pay A Broker’s Fee from Gothamist https://gothamist.com/news/nyc-is-one-of-the-only-cities-where-renters-pay-a-brokers-fee Accessed February 6 2020