NYC Bans Apartment Broker Fee From Tenants

In a landmark move, landlord-mandated broker fees have been banned. The practice of renters paying high upfront costs that could be as high as 15 percent of their annual apartment rent has been overturned. Renters in New York City are celebrating the fact that they'll no longer have to pay broker fees. Under a system mandated by New York City, tenants pay broker fees instead of landlords. However, under a law passed by the City Council, tenants are no longer liable for the costs. The Fair Access to Rental Expenses Act or F.A.R.E. received 42 of the 51 votes in a majority that's veto-proof. Under the new law, whoever hires the broker pays their fees.

In most cases, the broker fee will be the responsibility of the landlord. Mayor Eric Adams has 30 days to sign the bill into law. If he doesn't, it will still become law. F.A.R.E. will take effect after 180 days. The New York City Council passed legislation banning broker fees, which would prevent tenants from paying the real estate agent's commission, at least as an upfront cost. The bill is very popular throughout the city, in which two-thirds of the residents are renters. However, there's been opposition from real estate brokers and their representatives. Councilmember Chi Ossé, who introduced the legislation, stated that lobbyists attempted to get politicians to kill the bill, but it passed with the approval of the City Council. The Councilman promised it would make building rentals more affordable for tenants, simplify the process for apartment hunters, and prevent them from paying thousands of dollars in upfront costs before they sign a lease.

The concept of tenants paying broker fees is unusual and rare in most cities around the country. Under the previous system, tenants had to pay a mandatory real estate agent commission before moving into a unit if the landlord hired the agent. The fees are often high and may be as much as 12 to 15 percent of the annual rent, and there wasn't a cap. As of November 2024, the average rental in New York City is between $4,183 and $7,429 per month, depending on the amenities. Considering the first month's rent and the security deposit, a tenant may have to spend as much as $10,000 to lease a unit.

Tenants have the option of hiring their own representatives. The bill means they'll no longer have to pay broker fees to agents representing the landlord's interests. There's opposition from some groups who state that landlords will increase rents to cover their costs. The Real Estate Board of New York wouldn't agree to a fee cap. One member of the City Council agreed with the board and thinks the real estate industry should sue to stop the law from being enacted. Mayor Adams said he believed the bill had good intentions. However, he has concerns that the one-time payment tenants must pay would transform into permanent rent increases for tenants. Councilman Ossé stated that it would violate the law of approximately half of the rent-stabilized apartments in the city and believes market forces, not landlords, set the rent.

In New York City, 47 percent of homes for rent are rent-stabilized. It would be illegal for landlords to tack on the fee to the rent cost. The real estate market sets rents. The New York broker fee plan is nearly a century old and dates back to a time when agents actively published listings in newspapers and worked directly with residents searching for apartments. Boston landlords use a similar payment structure, but it's rare in many other cities. Approximately 65 percent of Boston residents rent their homes, and broker fees are still a significant issue. Currently, renters in Boston must pay the first and last month's rent, a security deposit, and, in many cases, a broker's fee.

Most real estate listings for rentals are published on agents' websites and offer virtual tours, and many New Yorkers searching for a rental property are frustrated by the high costs. During a City Council meeting last summer, many speakers stated they spent thousands of dollars on brokers who only texted them the code to open a lockbox or the door to a rental unit. One speaker from Queens reported that she had to pay $6000 to switch apartments.

The brokers contend they do a lot more than open doors. They state their duties also include streamlining communication between landlords and tenants. They spend time scheduling viewings of available rentals, and conducting background checks, which is time-consuming. Although landlords will likely raise rents, many New Yorkers find rent increases preferable to the current system of paying upfront broker fees when they lease an apartment. Many young renters find the upfront costs challenging to manage and prefer to pay higher rents, citing that it would be more financially feasible.

Real estate brokers and industry groups are concerned that the law could affect the housing market, rental prices, and job security for real estate brokers. Some business owners believe eliminating broker fees for renters will make it easier for young entrepreneurs to relocate to New York. For the time being, the decision of the City Council will lower upfront costs for consumers renting property in the city.