^ the Department of State dropping its legislation on New York Real Estate, causing quite the mess and not really doing anyone any favors
And for the question I’ve fielded the most over the last month: What the hell is going on with broker’s fees for rentals in New York?
What happened:
As you know, overnight the New York legislature dropped a bomb on the brokerage world making it illegal for listing agents to collect broker’s commissions. The interpretation of the new law most simply states that listing (landlord’s) agents cannot charge a fee to the tenant. Prior to this, tenants would be charged a standard 15% of the yearly rent for commission, either to the listing agent if they went directly without representation, or split 7.5%/7.5% between the listing agent and their agent. But trust me…this broker’s fee is not going away, it’s just being placed somewhere else. Listing agents will now be paid by their owner and the owner will be amortizing the fee of ~10% into the rent to offset this cost. One study combed through 7,000 listings after the ban took hold and saw a spike of rent in 70% of listings. The law is still in a state of flux as there is a temporary restraining order removing the prohibition against landlord’s agents collecting commissions from tenants. However on March 13th this discussion will be litigated in court and will surely return to the forefront of conversation.
What this means for you if the law holds after March 13th:
- Say a one bedroom in the West Village in the prior market was listed at $3,700, with a broker’s fee…in this new market, that same apartment will be listed for $4,100 but will be no fee
- Landlords may raise rents on their current tenants up to 10% for upcoming leases that are expiring, knowing the comparative inventory is now up
- Co-op and Condo owners will pay an exclusive agent a one-month fee to represent their rental transaction & advertise as no fee
How does this negatively affect you besides your rent increasing?
- Your renewal will be based off the higher rent, so in a year you’ll be bumped up off the $4,100 not the $3,700
- You have to qualify for that higher rent – qualifying for an apartment in NYC means your yearly salary needs to show 40x the monthly rent so you may not be eligible for inventory you were before in the prior market.
- Property taxes on rental buildings, condos, and co-ops will go up as taxes are assessed based on comparative rental prices
- Rent-stabilized buildings will become an even less desirable asset to hold. This change will impact these landlords the most which is surprising as the mayor has been pushing for ‘affordable housing’ and this will do the exact opposite
- Since this would mean most tenants will be deterred from using their own representation since everything listed will be “No Fee”, they will be incredibly exposed to slumlords, poorly kept buildings, and neglectful management. The listing agent always has his or her fiduciary duty to the landlord, as they are contractually obligated to keep the landlord’s best interest at heart.
Just to make things a bit scarier, in a a new report, rents were 5 percent to 6 percent higher last month than a year earlier in all three boroughs covered by the Douglas Elliman market report in values measured before news of this broke. With it still being a strong buyer’s market and interest rates insanely low, if you’re in the market to purchase, this may be the time to explore!