Broker Rental Fee Ban

David Goldsmith

All Powerful Moderator
Staff member

"On Friday, the office of New York Attorney General Letitia James requested an extension to respond to the real estate industry’s Article 78 petition until May 1 and the industry agreed to the delay, according to court documents and a statement sent by the Real Estate Board of New York. The parties will now meet in court on June 12.

“Attorneys for the government and the industry recognize the complexity of the issues raised in the matter and agree that additional time is necessary for preparation of court documents,” REBNY president Jim Whelan said in a statement.

The temporary restraining order halting the DOS guidance will remain in place until the June court date."
 

David Goldsmith

All Powerful Moderator
Staff member
Here is something I haven't seen mentioned anywhere throughout almost 2 years of discussion on this issue:
For a long time, if an owner signed an exclusive with a broker and forced potential tenants to go through that broker (even if they had come to the property on their own) that broker couldn't charge the tenant a commission to rent the unit (most often it was the managing agent for the property). I know this to be true because a friend of a friend went to a building, asked the super about any available units and ended up renting one, but was charged a commission by the managing agent. I advised her to contact the Department of State and make a complaint, and after she followed my advice she got a refund.

At some point that apparently changed but I don't recall ever seeing an announcement of a change in that rule. But obviously it happened because we have seen thousands of such exclusives executed and no action taken until now.

I have mixed feelings about this. While I agree with the sentiment that whoever hires the broker and received value for their services should be the one who compensates them, I don't see why that can never be the tenant. Especially since under the 2019 changes we are seeing the table set for below market rent regulated units coming on the market, I don't see a valid argument that tenants shouldn't be paying the commission on them.

It’s back: Lawmakers propose ban on broker fees​

State senators Jabari Brisport and Julia Salazar co-sponsored the bill​


The push to ban New York City tenants from having to pay their landlords’ broker fees has been taken up by lawmakers.
New York State Senators Jabari Brisport and Julia Salazar introduced a bill last month that would ban landlords from forcing tenants to pay their broker fees. The bill was introduced about six weeks before the Legislative Session ends and there is not a matching bill in the Assembly, which is a requirement for the proposal to become law.

The Department of State attempted to bar the practice last year by issuing guidance directing real estate professionals and landlords to stop collecting broker fees from tenants.

Broker fees in the city are typically about 15 percent of the annual rent, which when combined with the first month of rent and a security deposit can mean tenants must come up with a five-figure sum just to move in. For instance the broker fee for a Manhattan apartment asking the borough’s median rent of nearly $3,100 would be about $5,580.

The real estate industry, which argued that such a ban was a “death knell” for agents and brokerages, filed for a temporary injunction and sought to overturn the guidance.
The core question of the case was whether or not lawmakers — and the Housing Stability and Tenant Protection Act of 2019 — intended to ban the tenant-pays practice.
Albany Supreme Court Judge Susan Kushner sided with the industry in April, saying that state regulator’s guidance was an “error of law.”

In her ruling, Kushner said that her decision was based on the fact the 2019 rent law made no reference to “broker’s commissions” and did not specifically mention real estate agents.
“Where the term is intentionally included in one section of the Act and omitted in another, it is further evidence that the Legislature must have intended to omit it,” Kushner wrote.

Though DOS could have appealed the decision, lawmakers are taking up the cause in part, they say, to avoid further costly litigation for the state.
In a memo that accompanies the bill, Senators Brisport and Salazar say the proposal aims to clarify the intent of the HSTPA, despite the fact that they believed state regulators’ guidance was a correct interpretation of the rent law.

“This legislation is necessary in order to save the State of New York the litigation costs that will be necessary to remedy an erroneous interpretation of the Statewide Housing Security and Tenant Protection Act of 2019 by a single court in April 2021,” the bill reads. “Litigating this issue will cause New York State to incur litigation expenses that could otherwise be avoided by simply amending the (already clear) provisions of the [HSTPA].”

The bill is in the Senate’s judiciary committee. The offices of Sen. Brisport and Sen. Salazar did not immediately respond to requests for comment. In an interview with The Gothamist last year, Salazar called broker fees “one of the biggest barriers for tenants and families who need to move.”
James Whelan, president of the Real Estate Board of New York, which led the industry’s legal fight to overturn state regulators’ guidance, called the bill “deeply misguided.”

“Agents provide an invaluable service to owners and renters,” said Whelan in a statement. “It would be unconscionable to prevent agents, many of whom are middle-class New Yorkers, from earning the commissions they rely on to support themselves and their families.”
The industry’s position is that monthly asking rents will increase if landlords have to pay broker fees, and rental agents will lose their livelihoods. Since the pandemic began, there have been record levels of rental vacancies in the city, which forced landlords to lower rents and offer substantial concessions, including landlords paying broker fees, to woo tenants.

The legislative session is scheduled to end on June 10.
 

David Goldsmith

All Powerful Moderator
Staff member

Regulators relent: New guidance protects brokers’ fees​

Cuomo administration yields to judge who overturned broker-fee ban​

Is it news that New York state regulators are following the letter of the law? When it comes to who is responsible for paying broker fees, the answer is yes.
The Department of State has updated its guidance to align with an Albany judge’s ruling from last month that landlords can continue to collect broker fees from prospective tenants.
The practice is common in New York City but has been under scrutiny since early 2020, when state regulators tried to spare tenants from paying for agents showing apartments on landlords’ behalf. The industry — predicting agents would lose their jobs — challenged the regulators in court and won, leading to the new guidance.
view
view
view

A typical broker fee is about 15 percent of a unit’s annual rent, which — when combined with first month’s rent and a security deposit — can mean tenants must come up with a five-figure sum just to move in. The broker fee alone for a Manhattan apartment asking the borough’s median rent of nearly $3,100 would be about $5,580.
The ban was based on the Department of State’s interpretation of the Housing Stability and Tenant Protection Act, which passed in June 2019. But the ban was quickly blocked by a temporary injunction and in April, Albany Supreme Court Judge Susan Kushner ruled that the agency’s guidance “was issued in error of law and represents an unlawful intrusion upon the power of the legislature and constitutes an abuse of discretion.”

State regulators could have appealed the decision, but legislators are trying to take matters into their own hands. Two state senators from Brooklyn, Jabari Brisport and Julia Salazar, introduced a bill weeks later that would ban landlords from forcing tenants to pay their broker fees.
In a memo that accompanies the bill, Brisport and Salazar say the proposal aims to clarify the intent of the new rent law.

“This legislation is necessary in order to save the State of New York the litigation costs that will be necessary to remedy an erroneous interpretation of the Statewide Housing Security and Tenant Protection Act of 2019 by a single court in April 2021,” the bill reads, referring to the judge’s ruling.
But it is far from certain that an appeal would succeed. The 2019 rent law makes no specific reference to exempting tenants from broker fees.

The bill is in the Senate’s judiciary committee, but with the legislative session ending June 10 and no Assembly version of the measure introduced as of Wednesday, it appears unlikely to pass this year.
In a statement this month, James Whelan, president of the Real Estate Board of New York, which had led the industry’s legal fight to overturn state regulators’ guidance, called the bill “deeply misguided.”
 

David Goldsmith

All Powerful Moderator
Staff member

Costly Broker Fees, Scourge Of NYC Renters, Return With A Vengeance​

On a recent Sunday afternoon, dozens of New Yorkers lined the narrow hallway of an East Village building. Most had arrived early for the open house, which promised a one-bedroom apartment on the fourth-floor of a walk-up priced at $2,2000 per month. An air of desperation, familiar to many pre-pandemic showings, hung in the air.

The real estate broker explained the terms, unmentioned in the listing: On top of first month’s rent and a security deposit, the tenant would be expected to pay 15% of the annual lease for her fee. After plugging the figures into a calculator, one prospective tenant balked at the nearly $4,000 figure, then requested an application anyway.

“You could make a lower offer,” the agent deadpanned, “but then you probably won't get the apartment.”

After a whirlwind couple of years, the broker fee has come roaring back from its pandemic-induced absence. Several real estate agents said they were now collecting higher commissions than they did before COVID, shouldered almost entirely by tenants.

David Rosen, a veteran broker with Douglas Elliman, recounted a “sudden flood of humanity” returning to the city, allowing brokers to collect one-time payments that seemed unfathomable even a few months ago. He described the hefty commissions as “distasteful” to discuss, but added, “Most brokers are having their best year ever.”

The real estate rebound has surprised some industry experts, who predicted a lagging market well into 2022. Instead, as employers order workers back to the office and students return to in-person learning, landlords are reportedly yanking back deals and hiking rents by as much as 70%.

Increasingly, those with apartments in the most desirable neighborhoods — which also saw the largest share of COVID move-outs — are also declining to pay the cost of broker fees.

“Owners are trying to recoup their losses,” said Adjina Dekidjiev, a broker at Warburg Realty with 25 years of experience. “Compared to 2018 and 2019, there are fewer owners paying fees."

"I’ve seen a lot of cycles in the market," she added, "but nothing like this.”

“Exploitation of the housing shortage”

Broker fees may be a fact of moving in New York City, but they’re unheard of just about everywhere else in the country. In most cases, renters work directly with property owners or managers to secure an apartment. When brokers do get involved, their fees are paid by landlords.

Tenant-paid fees — a relic of pre-internet apartment hunting — were largely expected to disappear with the rise of online listings. Much to the chagrin of renters, they’ve hung around.

But that long-established system was nearly upended in February of last year, when a state regulator interpreted recently passed rent laws to mean that owners should have to pay the fees. The tenant victory was short-lived; within weeks, the Real Estate Board of New York and several big-name brokerages sued to obtain an injunction, and the ruling was officially overturned earlier this year.

(REBNY’s position on the matter has evolved significantly over the last century; back in 1945, after hearing reports that some brokers were charging a full month of rent in fees, the powerful real estate board condemned the apparent “exploitation of the housing shortage” and warned its members to refrain from “exorbitant brokerage charges.)

Even after the broker fees were quickly made legal, their resurgence wasn’t felt, as the pandemic forced desperate landlords to cover the fees in order to lure tenants into empty apartments.

During the month of April, fewer than 20% of apartments required tenants to pay a broker fee, according to data provided by StreetEasy. That proportion grew to about one-third this month, and was significantly higher in trendier neighborhoods of Lower Manhattan: More than half of all apartments in the West Village and 69% of those in SoHo now come with a broker fee, in line with pre-pandemic figures.

Jonathan Miller, the president of the real estate appraisal firm Miller Samuel Inc, noted that the size of a broker fees was closely correlated to an apartment’s demand — and thus largely disconnected from the amount of work that a broker might put into finding a person a home.

“The market isn’t consistent,” he noted. “We have bidding wars and long lines in some neighborhoods, and we have apartments that are renting for less than they did a few years ago in others.”

Wayne Baumann, an independent broker who works across the five boroughs, had another explanation for why broker fees were so high in parts of Manhattan. With thousands of brokers competing for listings in the city’s most popular neighborhoods, he said, property owners and managers now expect a cut of whatever fee a tenant provides to their agent.

“They know they have a hot commodity and they’re looking for kickbacks,” he said. “If you don’t show some reciprocation financially, they won’t even look at the application.”

“There’s always someone willing to pay a premium”

For some New York City tenants, broker fees can seem more like a shakedown than an earned commission. That feeling was only intensified by the lifting of a state restriction early on in the pandemic, which previously forced brokers to physically show a home in-person.

Without that rule in place, some tenants are now being asked to pay thousands of dollars to an agent they’ll never meet, whose apparent contribution to the transaction was texting a code to a lockbox outside the apartment.

In particularly egregious cases, brokers may “double dip,” effectively collecting a fee from tenants who don’t know that the landlord has already paid the commission.

“It’s not completely uncommon, though it’s discouraged,” said Rosen, the broker at Douglas Elliman. “You can imagine in this environment that some people do everything they can to collect every penny they can. There’s really very little regulation.”

“It’s not a perfect system, but it is the New York system,” he added.

Defenders of the practice note that, if tenant-paid broker fees were made illegal, landlords would likely bake the cost into monthly rent. They argue that brokers have a wide range of unseen responsibilities, such as fielding calls and emails, taking cabs to far-flung locations, and handling huge amounts of paperwork — particularly for apartments that receive a large number of applications.

Dekidjiev, the Warburg Realty broker, described helping a recent arrival to New York City understand different neighborhoods and price points.

"She was happy to pay the fee after I explained how things work here,” Dekidjiev said. “There’s always someone willing to pay a premium.”
 

David Goldsmith

All Powerful Moderator
Staff member
Whenever I see a discussion where someone is incredulous that NYC has rental fees paid by tenants and "nowhere" else does I know they have little historical knowledge. Tenants paid fees in NYC because of Rent Stabilization because landlords couldn't simply build fees into rents because they were capped by statute. Also tenants were paying brokers for access to below market priced units.

New York pols revive push to kill broker fees​

Reform floated as fees surpass $10,000​

New York’s on-again, off-again relationship with broker’s fees may be headed toward another breakup.
New York Sen. Jabari Brisport broached the issue in a Thursday morning tweet:

“Tenants should not pay brokers fees,” he wrote. “The landlord hires the broker. The landlord should pay the broker.”
“[Assembly member Zohran Mamdani] and I have a bill for this,” Brisport concluded. The lawmakers are two of a handful in the state legislature who are affiliated with the Democratic Socialists of America.
The renewed interest in broker fees by state legislators and City Councilwoman Carlina Rivera, according to Gothamist, comes as New York rents have broken records for each of the past six months.
In response to that supercharged demand, brokers are pushing the envelope to see what tenants are willing to pay. Jaw-dropping fees for rent-stabilized units, for which landlords cannot charge market-rate rents, have made headlines this summer.

In June, Hellgate reported that an Upper East Side walk-up was charging a $10,000 fee to rent a two-bedroom listed for $3,150 per month.
And last month, a City Wide Apartments broker caught the eyes of the Department of State after asking an extra $20,000 for a stabilized one-bedroom on the Upper West Side.
Typically, brokers charge between one month’s rent and 15 percent of the annual rent. When demand is low, as they were in 2020, no-fee apartments become easier to find.

But the five-figure charges reek of “key money” — illegal fees landlords charge tenants to secure a lease. Some have suggested that with fees as high as they are, brokers may be kicking back a portion of them to landlords.
Bisport’s bill seeks to cut the cord between tenant and broker altogether.
The state senator’s legislation, introduced and co-sponsored by Sen. Julia Salazar in April 2021, would make it illegal for landlords to demand any payment at the beginning of a tenancy, apart from the $20 allotted for application processing. That includes broker fees. It’s unclear how much traction that bill might get now that fees appear to be rising.
The hotly contested legality of broker fees was settled just last year. After the 2019 rent law imposed the $20 cap on application fees, the Department of State issued guidance in February 2020 that brokers who accept tenant-paid fees could be subject to discipline.

Within days, brokerages and landlord groups, including The Real Estate Board of New York, sought a temporary injunction against the guidance. The industry prevailed in April of that year when an Albany judge put broker fees back on the table.
Bisport responded with his bill less than two weeks later. But given the state of New York’s rental market at the time, fees had become a non-issue.
In the spring of 2021, New York rents and apartment demand were just beginning to recover from the pandemic and most units were listed without fees.
Even now, with the market having roared back, tenant leaders such as the Met Council on Housing’s Andrea Shapiro acknowledge that exorbitant charges haven’t been a primary concern.

Bisport told Gothamist that tenant-friendly lawmakers have had bigger fish to fry, notably attempting to enact good cause eviction.
Brokers’ pushback against fee bans have emphasized that most brokers are middle-class New Yorkers and would see their incomes drop if landlords were forbidden to require tenants to pay broker fees.
The industry has also claimed that if passing along broker fees were banned, landlords would instead raise rents — eliminating any savings for tenants and potentially costing them more in years to come.
 
Top