The notorious broker fees embedded in the process of acquiring an apartment in New York City have recently been abolished by the FARE Act, a legislation endorsed by the City Council. These broker fees, unique to New York’s real estate system and exceedingly rare elsewhere in the US, typically obligate potential tenants to pay an agent’s commission prior to moving in, even if the landlord initially hired the agent. The lofty fees often cost as much as 15% of the yearly rent, averaging approximately $7,000 for the typical New York City residence. The bill was ratified by a substantial 42 to 8 vote, demonstrating a veto-immune margin.
New York City’s Mayor, Eric Adams, who previously earned his living as a real estate broker, refrained from wielding his mayoral authority to sign the bill into legislation. However, due to the impressive veto-proof majority, his signature was not crucial for the law to be installed after a 30-day period. The objective of this legislation is to prevent landlords from imposing these financial burdens in the form of upfront payments on their tenants.
While tenants are still at liberty to employ their own representation in real estate dealings, they won’t be coerced into taking up the costs of agents who primarily act for their landlords. Given that renting households make up two-thirds of New York’s population, this legislation had wide-ranging appeal. However, it also ignited disapproval from brokers and their corresponding representatives, as they fear this could wreak havoc on an industry that relies on the employment of around 25,000 agents.
The principle of broker fees in the real estate industry in New York has historical roots dating back nearly a hundred years. This is when agents were instrumental in disseminating property listings through newspapers and liaising directly with would-be tenants. Indeed, similar commission frameworks exist in Boston, though are largely absent across other regions of the country.
However, the customary practice has come under criticism, especially since the advent of digitalization took over the role of agents with online property listings. Coupled with the increasing trend of virtual or self-lead apartment tours, a consequence of the pandemic, many New Yorkers have grown weary of additional fees.
At a recent City Council hearing, multiple orators remembered paying considerable sums to brokers who seemed to have provided minimal assistance other than granting entry or sharing the code for the lockbox. On the contrary, brokers argue that they offer extensive services beyond merely unlocking doors, such as carrying out background checks, planning viewings, and mediating communication with landlords in a city where tenants rarely encounter their property owners.
Others who expressed their dissent towards the bill, notably members of the Real Estate Board of New York, predict that landlords might absorb the extra costs into the monthly rents. However, some city residents argue that spreading out the additional expenses over monthly rent installments is more favorable compared to the current system of lump-sum upfront expenses that make moving more challenging.
The implementation of the FARE Act, representing a significant shift in the dynamics of the New York real estate business, will take place half a year from now.