Fear and Confusion as New York Moves to Eliminate Broker Fees

(Bloomberg) -- The broker fee, a costly burden of New York City apartment living that renters have grudgingly paid for decades, appears to have been outlawed -- and that may actually make renting more expensive.

New legal guidance on the state’s 2019 rent reforms that was unearthed on Wednesday says agents working for landlords may not charge tenants a broker fee. The practice has long made renting in New York ever more expensive. The fees, as high as 15% of a year’s rent, are paid by the tenant before moving in, on top of a security deposit.

While apartment hunters will cheer the rule change, their celebrations may be premature. Someone’s got to pay a broker, and that payment will likely get passed along to tenants in the form of higher rents, says Andrew Barrocas, the chief executive officer of New York City-based brokerage MNS.

“If a restaurant sells hamburgers and the cost of meat goes up, what do they do to the cost of hamburgers? They increase the price,” Barrocas said.

The rules are further frustration for landlords still smarting from the broader legislation, which made it nearly impossible to raise rents or cover the cost of improvements in the city’s roughly 1 million rent-regulated apartments. Values of buildings with regulated units have declined, and interest in acquiring them has plummeted as investors mull how much they’re now worth.

“There have already been rent regulations put in place this year that squeezed them,” said Kenneth Thornton, an agent with Corcoran Group. “This is just another cost that is going to be on their plates.”

The broker fee rule was included in a state document dated Jan. 31, which clarified the laws passed last year. Reports of the change caused shock and confusion in the industry, which supports thousands of jobs in New York.

The real estate industry plans to fight the new rules, but exactly how that effort will take shape wasn’t clear on Thursday, said Jesse Rhinier, an associate broker at City Connections Realty who serves on the board of REBNY, the influential trade association.

“There’s no doubt fear is part of this,” Rhinier said in an interview. “Most rental agents are barely scraping by right now.”

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.