Housing Policy

New York Regulators Issue Surprise Ban on Charging Renters Broker Fees

Brokers and building owners are vowing to fight a regulation they say will be catastrophic for their industry.

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A major progressive-backed overhaul of rent regulations continues to cause chaos in New York City's real estate market, following the issuance of new regulatory guidance that bans real estate brokers from charging fees to the tenants they find for landlords.

It's common practice in New York City for landlords to hire real estate brokers to fill empty units. These brokers will then charge tenants a fee, which typically amounts to 15 percent of an apartment's annual rent.

In June 2019, state lawmakers passed a major update to the state's rental regulations that strengthened existing rent control laws, capped security deposits and apartment application fees, and also banned landlords from charging other fees at the beginning of a tenancy.

Yesterday, news broke that New York's Department of State had unexpectedly issued regulatory guidance interpreting that latter provision of the June rent law to ban the practice of applying these brokerage fees to tenants.

The industry has so far reacted with a mix of panic and confusion.

"That's insane," said real estate lawyer Bruce Cohen to The Real Deal. "It's an all-hands on deck thing because this came out of left field," a representative of the Real Estate Board of New York (REBNY), a trade association, told The New York Times, warning of "dire" consequences for the industry.

Without the ability to pass brokerage fees onto tenants, landlords are saying they will either just raise rents or forgo hiring brokers altogether. The first option is only available to the owners of unregulated, market-rate apartments in the city. Owners of rent-stabilized units—where rent increases are set by the city and landlords are limited in their ability to pass costs onto tenants—will have to find their own renters or absorb the full cost of these brokerage fees.

"Owners in rent-stabilized apartment units are going to have to make really tough decisions about whether they even invest in brokers, so you are putting the broker industry in huge jeopardy," says Jay Martin of the Community Housing Improvement Program (CHIP), which represents small landlords.

That would obviously be bad for the brokers themselves. It would also be bad for tenants and landlords, says Martin. The entire reason a brokerage industry for apartment rentals exists in New York City, he tells Reason, is because landlords often lack the financial or logistical bandwidth to show hundreds or even thousands of units to potential tenants.

"It's not really a situation where small building owners can just put a for rent sign out on their door. This is a situation where brokers serve a vital need as the link between tenants and owners," he says.

The sudden prohibition on charging renters brokerage fees is only the latest disruption landlords have experienced as a result of the state's new rent regulations.

That legislation also limited landlords' ability to pass on the costs of apartment improvements to tenants through rent increases. A survey of CHIP's members found 69 percent of them had decreased their spending on renovations by 75 percent or more.

Other provisions in the law revoked building owners' right to deregulate rent-stabilized apartments (charge market-rate rents) once rents reached a certain level. That's resulted in a near 40 percent drop in the sale of rent-stabilized buildings, and steep declines in these buildings' value. (There's some evidence that building sales are recovering slightly in response to the collapse in building values.)

"If the government keeps doing this, we are going to see a rapid insolvency of the housing market in New York state," Martin says.

The Department of State guidance, which was issued last Friday, is just that; guidance. That means the department can reverse it unilaterally, an outcome Martin said CHIP will be fighting for. RENBY has said that they are considering lawsuits to reverse the guidance.

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29 responses to “New York Regulators Issue Surprise Ban on Charging Renters Broker Fees

  1. Don’t worry, comrades. Is part of glorious five-year plan for New York Socialist Republic.

    1. It’s a ten-year plan. If they force enough out-migration by the 2030 census they can redistrict the state and eliminate Republican congressional seats. This is far easier than maybe not being a shitty party and trying to gain voters in those areas.

  2. I would guess NYC is doing this to limit people’s ability to find housing without going through the government.

    1. thats what will happen the government will take over the position but they will charge everyone for it and do a lousy job of it. it will be a nightmare and with teh government in charge if you want to rent you will have to meet a social credit level to rent just like in china. this article with teh two from yesterday is just fascist all the way.

      And did anyone else here California is thinking of requiring voters to vote, talk about a way to screw up all votes. those darn illegals haven’t been voting like they though they would

      1. Technically, the proposed law doesn’t force one to vote: it requires all registered voters to “cast a ballot.” Casting a blank ballot is still legal (I am guessing that is how they are trying to avoid constitutional challenges). I couldn’t find anything about the penalties for non-compliance. God I am glad I left that State.

        1. That would be hilarious if Republicans started winning elections because they were more competitive then they thought they were this whole time but had become disillusioned.

        2. Is there a real difference between casting and voting, casting is voting and voting is casting your ballot

          1. Well, from my perspective, being forced, under penalty of law, to “cast” a blank ballot (though it is about the stupidest thing I have heard this year) wouldn’t violate my right to refuse to support a politician I don’t want to support.

            But yeah, it’s all Califoridiculous,

  3. Progtards always think realtors, mortgage brokers, insurance agents, etc. provide no real service and should work for free, or at some regulated level that isn’t even minimum wage.

    1. If they’d stop thinking that all agreements are forced, that agreements have winners and losers, and that winners are always businesses and losers are always peasants … but that’s as likely as any government aficionado thinking government isn’t necessary. It’s madness. Trump and the Democrats all agree that tariffs and managing trade are their business, Trump hates foreigners, the Democrats hate everybody who thinks for themselves.

      You own yourself.

      Voluntary agreements satisfy all parties.

      Liberty is fantastic.

      1. Even Robert Ringer wrote that every transaction has a winner and a loser. And people don’t get more libertarian than Robert Ringer!

        1. That’s a ridiculous concept dependent on the prerequisite that in every transaction all parties have the same priorities and values. Which is obviously untrue.

          I’ve paid 15% interest and ten points on real estate loans before. The average idiot would assume I lost in those transactions. Except in each case it allowed me to access capital quickly and conventionally enough to complete another transaction or goal that was far more valuable to me.

          Unfortunately most people are programmed to think like Ringer and make poor decisions based on his two dimensional worldview.

  4. Rent controlled apartments need brokers to fill them?

    This seems unlikely.

    Seems more like the broker is splitting the tenant fee with the landlord?

  5. Ignorant question, but I can guess the Progressive answer: could landlords stop monthly / annual renting or leasing and just use airbnb for apartments?

    1. AirBnB is banned in NYC

  6. Housing is a human right so why are they allowed to charge anything at all?

  7. You have to break some eggs to make an omelet. Nobody has yet figured out how broken eggs turn into omelets, but they’re going to keep breaking eggs until an omelet appears.

  8. Today has been refreshing. It’s good to see Reason back to reporting on things it’s actually good at reporting on. They should just leave pure politics alone for awhile. About 4 years ought to do it. Then try to make a fresh start.

  9. “If the government keeps doing this, we are going to see a rapid insolvency of the housing market in New York state,” Martin says.

    The Cloward-Piven approach to solving the housing crisis.

  10. A5 seems to apply here; the government is ‘taking’ the freely agreed value of finding suitable tenants.
    If that’s not an economic good being taken, anyone who sells their time to a buyer is in trouble. Like, oh, lawyers.

    1. That is an argument which would apply if the fee were charged to the landlords. When the fee is charged to the tenants, the argument makes no sense. Tenants get zero value from compulsory rental agent fees.

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  12. “”If the government keeps doing this, we are going to see a rapid insolvency of the housing market in New York state,” Martin says.”

    A feature. Not a bug.

    CB

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