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New York City\u2019s new law that shifts responsibility for most broker fees<\/a> from renters to landlords will go into effect tomorrow after a judge denied a powerful real estate lobby’s attempt to prevent the law’s implementation.<\/p>\n Since the fee is usually 12 percent of the annual rent, the Fairness in Apartment Rentals\u00a0(FARE) Act removes a significant upfront cost to renters\u2014saving renters an average of $5,404, according to a new StreetEasy report.<\/a>\u00a0It\u2019s a major change for the NYC rental market, which has been an outlier in having renters compensate brokers hired by landlords.<\/p>\n But the cost is not going away completely. Landlords have been rolling the fees into higher rents in anticipation of the FARE Act\u2019s start\u2014in effect spreading the cost over the term of the lease, which renters will likely find easier to pay. StreetEasy says the increase is about 5.3 percent but there are reports of higher rent increases (more on this below).<\/p>\n In November, the City Council approved the Fare Act,<\/a> introduced by Council member Chi Oss\u00e9, with a veto-proof majority of 42 members. Mayor Eric Adams did not sign the legislation, which meant it would take six months to go into effect rather than immediately.<\/p>\n The Real Estate Board of New York, the powerful trade group, along with several brokerages, filed a lawsuit<\/a> last year to block implementation of the law, arguing that it violates the First Amendment, among other claims. However,\u00a0Judge Ronnie Abrams denied REBNY’s request for a preliminary injunction, which would have prevented the FARE Act from going into effect while the lawsuit was pending, The Real Deal<\/a> reported. The judge also dismissed REBNY’s claim that the law is unconstitutional, but allowed the suit to continue in regard to an allegation that the FARE Act wrongfully interferes in private contracts.<\/p>\n If you\u2019re hunting for a rental, here are some of the changes you can expect as a result of the FARE Act and what you should watch for.<\/p>\n The Department of Consumer and Worker Protection is the city agency charged with enforcing the new law. A broker can be fined $500 to $2,000 for brokers and owners who violate the FARE Act by illegally collecting fees.<\/p>\n The New York Department of State can impose additional fines of $2,000 and could revoke a broker\u2019s license on top of any penalties under the FARE Act, Mercedes Padilla, spokeswoman for the Department of State, previously told Brick.<\/p>\n Renters can file complaints to the DCWP by calling 311 and to the DOS by\u00a0filling out this form<\/a>\u00a0and\u00a0emailing<\/a> it\u00a0to the agency.<\/p>\n The biggest change most renters will feel is the absence of an expensive broker fee (except for renters in the scenario below).<\/p>\n Kenny Lee, an economist at StreetEasy, told Brick that the FARE Act \u201ca big win for renters.\u201d<\/p>\n Lee recently calculated the savings for NYC renters signing a lease in a new report,<\/a> which predicts the new law will lower average upfront costs<\/a> for rentals currently charging a broker fee by 41.8 percent, from $12,942 to $7,537. (Upfront costs include first month\u2019s rent and a security deposit equivalent to one month\u2019s rent.)<\/p>\n One aspect of renting in NYC remains the same: Renters who hire an agent, for example to show them multiple apartments in their budget, will still be required to compensate the broker.<\/p>\n But this relationship is supposed to be clearer under the FARE Act. An agent is required to disclose<\/a>\u00a0whether they work for the landlord. If the broker is working directly for you and you agree to sign a contract, then you will pay their fee, typically 12 percent<\/a>\u00a0of the annual rent, but it can range from 10 to 15 percent. The fee is supposed to be negotiable.<\/p>\n Another aspect of the FARE Act is that all fees a renter must pay are defined in advance in a renter agreement, such as fees for lost keys, pets, and move-in\/move-out.<\/p>\n One criticism of the FARE Act is that it will send rents skyward but Lee contends rents are not likely to increase significantly beyond market trends. His report found properties that switched to no-fee ahead of implementation increased rents 5.3 percent, only 0.7 percent above the rest of the market.<\/p>\n That suggests \u201cproperty managers will continue to absorb much of the additional cost, as they have in the past,\u201d Lee wrote. Market conditions ultimately set rents, he noted. (NYC rents have been setting new records<\/a> in recent months.)<\/p>\n And he predicted that a large share of property managers will continue to work with rental agents. During the pandemic in 2021, when owners had a hard time finding renters, 80.3 percent of rentals that did not charge the tenant a broker fee were represented by brokers, Lee said. This year, the share of all no-fee rentals represented by agents is 56.9 percent.<\/p>\n StreetEasy\u2019s 5.3\u202fpercent figure seemed conservative to Rachel Fiegler, co-founder of the Pinpointe Group, a boutique brokerage.<\/p>\n \u201cLandlords we work with have bumped asking rents 8\u201312\u202fpercent to cover the one\u2011month broker fee they\u2019re now responsible for,\u201d she said.<\/p>\n Bill Kowalczuk, a broker at Coldwell Banker Warburg,<\/a> said he has already raised rents on apartments he represents if the landlord agrees to cover the fee\u2014and the increase has been higher than 5.3 percent as well, for example an apartment that rented 18 months ago at $12,000 for year one and $12,300 for year two is now $12,950 and $13,050 for the second year, with the landlord covering the broker fee.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0<\/p>\n \u201cWe recently leased a studio in a doorman building in Brooklyn. The landlord paid the fee, but we achieved $4,150 a month, the highest rent ever paid in that building,\u201d Kowalczuk said.<\/p>\n \u201cThe landlords came out ahead by increasing the rent and covering the fee, rather than settling for a lower rent without paying it. The tenants, on the other hand, will have much greater out-of-pocket rent costs the longer they stay in the apartment, since rent increases will always be calculated on the inflated rent,\u201d he said.<\/p>\n Kowalczuk was echoing one of the criticisms of the FARE Act: When landlords roll broker fees into rents, tenants will be stuck paying the fees after they renew.<\/p>\n While a renter will pay less at lease signing, \u201cwith the fee baked into the rent, tenants will pay it every month and again at renewal, plus the landlord\u2019s annual increase. Spread over a two\u2011year stay, many renters will end up paying\u00a0more\u00a0than the one\u2011time upfront fee,\u201d Fiegler said.<\/p>\n But Lidor BarDavid, co-founder and chief marketing officer of apartment listing and review platform\u00a0openigloo,<\/a>\u00a0doesn\u2019t think that outcome is inevitable or supported by what his company is seeing.<\/p>\n Nearly half of NYC apartments are protected by rent stabilization and many market-rate units are covered by Good Cause Eviction law,<\/a> which means landlords can\u2019t raise rents beyond what the law allows (currently 8.8 percent).<\/p>\n \u201cSo the idea that broker fees will be baked into higher base rents doesn\u2019t even apply to a large segment of the housing stock,\u201d BarDavid said.<\/p>\n He said that many market-rate landlords \u201calready choose to cover the broker fee to make their listings more competitive, and they\u2019ve done so without raising the rent\u2026Asking someone to come up with $4,000-plus on average in fees just to sign a lease is a much heavier burden than a modest rent adjustment spread over a year, if one even happens.\u201d<\/p>\n Higher rents do mean renters need to show more income to qualify for apartments. NYC landlords prefer renters who earn annual salaries of 40 times the monthly rent.<\/p>\n Fiegler provided the following scenario: A one bedroom that was $3,500 now lists for $3,780\u2013$3,900. Instead of showing $140,000 in annual income, a renter must prove they make roughly $150,000 or bring on a guarantor<\/a> who earns $300,000. \u00a0<\/p>\n \u201cSo the policy helps with up\u2011front cash, but it also knocks borderline applicants out of contention,\u201d she said.<\/p>\n Fiegler said some landlords have workarounds that could impact what listings you see online.<\/p>\n \u201cSome smaller landlords tell us they\u2019ll self\u2011list on StreetEasy to dodge the fee,\u201d she said. \u201cOthers plan a hybrid strategy: Keep the cream online and hold back the rest, forcing renters to hire their own agent if they want to see every option.<\/p>\n \u201cI expect an overnight dip in the visible inventory count on June\u202f10th and 11th, followed by a gradual climb as the market finds its footing,\u201d she added.<\/p>\n Jason Haber, a broker at Compass,<\/a>\u00a0expects a more dramatic impact on listings.<\/p>\n “We are about to witness a huge decline in online supply, which will only make it harder and more expensive for tenants to find an apartment. Tenants will be looking for apartments as if it were 1999. Off-market listings, e-mail blasts, and other less efficient systems will percolate, all to the detriment of the very tenants this law is intended to help,\u201d Haber said.<\/p>\n There are always pros and cons to locking in your rent with a two-year lease<\/a> instead of one year and the FARE Act adds a new wrinkle to this discussion.<\/p>\nFines for violating the FARE Act<\/h2>\n
Lower upfront cost to renting<\/h2>\n
When you do need to pay a broker fee<\/h2>\n
Slightly higher monthly rents\u2026<\/h2>\n
\u2026or much higher rents<\/h2>\n
A permanent broker fee?<\/h2>\n
Harder to qualify for apartments<\/h2>\n
Online inventory may drop<\/h2>\n
Consider a two-year lease<\/h2>\n