New York City Council Votes to End Broker Fees Squeezing Renters

This is a win for price competition - the "broker fee" paid by the renter is a classic example of principal agent problems / information asymmetry.

First, the service is being provided to the landlord (listing, tours, etc.), not the client, for all listings these days (I don't know any young person who has ever used a renter's agent, except maybe if it's provided in a relocation package). The renter has no choice in which broker to use to find/transact w/ the property, so there's very little price pressure for these broker fees.

Second the information asymmetry - the terms of the fee are completely opaque in the listings, and are not disclosed basically until signing unless you press brokers earlier. So there's basically no competitive pressure pushing these fees down, since it's basically a "junk fee" from a user experience perspective tacked on at the very end (and not listed on listings), and the landlord - who IS in a position to negotiate on price - doesn't care.

I don't buy the argument that there will be some long-term price hike in rents as a result of this decision - people who rent for 1-5 years already are paying a MASSIVE "net effective" premium for having an additional month's rent tacked on up front - but also it strongly incentivizes tenant retention (e.g. by being more responsive, keeping prices lower, etc.), because the landlord does not want to have to eat a broker's fee next listing.

Perfectly said on both counts. Rents, unlike broker fees, are highly transparent prices that are far more influenced by market pressure and competition, a win for buyers in a market already very lopsided toward sellers. Because broker fees are disclosed selectively and later in the purchase funnel, buyers (renters) often make less optimal and more expensive choices due to that information asymmetry.

There definitely will be a small spike in the cost of rentals, but 1) it will definitely not be a perfect 12-15% transfer from what the fee costs, and 2) I predict that downward price pressure will bring rental costs around what they are now, especially given the prevalence of no fee units. The cost will likely just cut into landlords' revenue, and anyone claiming prices will rise substantially are probably lobbying on behalf of landlords.

I live in a building primarily owned by offshore investors.

NYC is a place where it's expected you'll always be on a lease - it's not common to go month-to-month after you fulfill your initial obligation (as it is in other cities).

I've heard a common grift here is to offer current tenants awful terms to renew the lease. The broker is banking on you balking, so she gets to tell the owner (who's never met you or even been to the US) "sorry - the existing tenant doesn't want to renew, so you're going to have to pay me to market the apartment again."

Tenants will have more cash each month. Tenants bid up rents to the point of affordability, and they'll become more affordable. Furthermore, there will be more would-be tenants b/c you don't need to save up a for a broker fee -- as long as your income is high enough, you can get a unit, at least in theory. So more competition....

Of course there's competitive pressure to reduce or get rid of these fees. Plenty of people avoid buildings with brokers fee. Its even a filter in most real estate sites. I personally only looked at no fee brokers in the apartments or amortized the broker into the monthly payments. And for me, only no-fee apartments got my rent.

People aren't dumb and look at an apartment and get quoted $4k a month and when they go sign they realize its an extra $6k broker fee and just open up their wallets like "whoops". It's definitely factored into the price and affects who gets in to the door

We should avoid “caveat emptor” as the status quo when possible, shouldn’t we?

Wonks and experienced New Yorkers aren’t dumb. I too refused any apartment that wasn’t “No Fee”. But only a tiny fraction of the housing stock - especially very few “cheaper” places - are No Fee. And it is genuinely hard to not price anchor on the listed price - especially if you don’t know how long you’re going to live there (aka how much to amortize vs a No Fee)

> Plenty of people avoid buildings with brokers fee.

Very few units/buildings are no fee. And because so few are, there isn't much competitive pressure to reduce or remove the fees, because it's really hard to find a no-fee apartment that meets your other criteria. Hence, the new law.

Absentee landlords always get screwed by their local vendors. Nothing new there. It's routine for property managers to solicit kickbacks from other services that they hire like maintenance and landscaping.

Plenty of people are surprised by the junk fee and end up eating it.

Whatever lecture this came from needs to get a reality check -- "downward price pressure" on rental units in most of the USA was slowly disappearing until the COVID-19 lockdown, at which time the prices increased dramatically, across the board, in all markets (except maybe the Ohio valley? Mississippi ?). Secondly, AirBnB gave reliable revenue streams to property owners, across the western world, keeping units empty. Third, local government has converged on artificial constraint of construction in many markets.

In NYC, rents went way down, to the point where there was a sticker shock from people who moved to NY during Covid and were shocked when prices went back up a year or two later.

No honour among thieves, I guess!

As someone who rented for 20 years in NYC, this is a bizarre scenario you describe. You deal with a broker during the leasing process, and then after you lease it, you pay the landlord, they have to sign the lease and approve repairs, and are the person with whom you review lease increases. The most arms length relationship I have ever heard or seen is having an admin assistant for the landlord handle all the operational things.

I have never seen a situation where the broker is responsible for the lease terms, because in the end the landlord has to sign their end.

It looks like this measure only applies to "real estate agents who exclusively represent the landlord’s interests". "The bill requires landlords who hire real estate agents to pay the agents’ fees themselves".

My read is that as long as a broker works with multiple landlords, you the tenant will still pay them a fee. And it might remain difficult to find available lodging without going through brokers.

ok, I checked .. this article [0] says that rents in 2020 went back to 2011 prices.. new to me, so yes, I could write more carefully.. my mistake. Overall, I don't retract it.. rental prices are steeply greater now than 2020 AFAIK

[0] https://www.curbed.com/2023/01/nyc-real-estate-covid-more-ap...

No it doesn't mean they can't work with multiple landlords, it means the represent the landlord(s) interests, not the tenants.

If a tenant hires his own agent to find an apartment, that agent would (a) represent the tenant and (b) the tenant would pay for that service.

But I'm not sure what stops the landlords from just raising the rent to cover the broker fees. Unless there's enough competition from landlords who don't use brokers.

Brokers have gotten more “savvy” where they’ll actually act as a de facto property manager for a small fee or even for free and absentee landlords buy in because it’s less work for them (no communication at all with the tenant). And then the landlord wonders why tenants never stick around for more than a year!

Hopefully the actual bill wording doesn’t leave this ambiguous, but I think the intent of “exclusively” here is meaning that they don’t also represent the buyer’s interest (dual agency), not that they have an exclusive deal with the landlord.

It doesnʻt matter if they raise the rent to cover the fees. As another comment noted, THAT is a major win for price transparency. That would be a big improvement by itself.

My lease is with "Foreign Investor c/o Local Broker."

I think the reason it was listed as a "no fee" apartment is because the brokerage is the de facto landlady.

As the person who told me about this grift explained, this is not an uncommon relationship.

I tried to confirm your assertion about this grift but someone downvoted my previous comment saying as much. Just to reiterate: you’re right. This a real, relatively normal situation in NYC.

NYC during covid was crazy. Buildings were offering 12 month leases with 4 months free. So when things normalized in 2021/22 people were facing 33% rent increases and then the pace of the increases basically never slowed down until this year.

Landlords will raise the rent but can only raise the rent to what the market will bear (which presumably they’re doing anyway). They then have incentive to ensure the broker is worth the fee.

Previously landlords would require renters to work with (and pay) the broker, so there was no incentive to choose a cheaper broker.

> The renter has no choice in which broker to use to find/transact w/ the property, so there's very little price pressure for these broker fees.

How does that change if the landlord pays it? The renter still hasn't chosen the broker.

And either way, it comes from rent money.

This feels no different from pricing that hides sales tax, versus reveals it.

How about getting rid of these fucking agents.

I believe the argument is it should put downward pressure on the fees brokers request since the payer (landlord) would be able to shop unlike the current system, where the renter can’t see the price until they have already chosen.

> the landlord does not want to have to eat a broker's fee next listing.

Wouldn't a landlord who doesn't want to pay a broker just not use one? Advertise the place and handle the applicants on their own?

Which makes sense if you look at demand. We went from people will never live in cities again at the height of covid, to things like revenge travel and everyone wanting to give big cities a try now that prices were briefly down.

If the party who chooses the service provider is not the same as the party who pays the fee then it is difficult for market forces to operate. Making the same party choose and pay can fix that.

This is a different problem than "the service provided isn't valuable".

It's good that the prices are more visible. But the price of the rent will mostly be affected by the supply/demand curve.

Year Units Built Population Change (Number)

2019 26,900 -80,967

2020 23,000 +641,579

2021 24,000 -250,184

2022 24,000 -181,326

2023 27,980 -101,984

Last 5 years not much change in supply, but demand varies.

(based on https://en.wikipedia.org/wiki/Demographics_of_New_York_(stat...)

Here’s the thing: let’s assume that that’s exactly what happens. It’s still a good thing. This is now reflected in the visible part of the cost enabling people to make better decisions.

> How about getting rid of these fucking agents.

This is what will likely happen with this law.

The prior system was that the person who hired the broker (the property owner) didn't care how high their fee was unless it caused them to lose a lease, since they weren't paying. So the incentive was for brokers to figure out how much money they could charge before they started blowing up deals for the person that hired them. If tenants would begrudgingly pay several thousand dollars to get the apartment, that is what they would charge. It was a race to the price ceiling since the payer wasn't the consumer. e.g. Owners don't care if one broker charges $2k, and one charges $3k, since as long as either can get a good tenant, they don't care.

Now, their pricing structure has to be directly in line with the property owners incentives. Property owners aren't going to swallow paying thousands of dollars to an agent for unlocking a door and processing an application (there are apps for both of those things that get it done for 10s of dollars). Now, it will be a race to the best price for the service. If one agent is asking $3k and the other is asking $2k, the owner will choose the one who is asking $2k, or more likely, save themselves $2k and do the work themselves.

Making it a landlord cost changes the incentive structure. Landlords now have an incentive to pay agents as little as possible to maximize their profits.

Yeah I got 3 months free to stay in my tiny Gowanus apartment. It ended up saving us enough to get us over the line on a down payment on a house later. It was a really fortunate turn in an otherwise miserable year.

The fees are still that high, even though the broker is from the landlord's side?

I wouldn't pay more than around $200 to have someone find me a tenant. Certainly not in landlord's market. It shouldn't be more than an hour or two of clerical work to talk to some people and sift through some applications.

So yeah, if landlords have to cash out for this, the broker racket in NYC is likely going to be fucked. Landlords are going to be sticker shocked; I don't see why they would be willing to paying four-digit figures in a market where tenants are not rare unicorns that have to be searched for high and low, and wooed.

That's the rub, the landlord chooses the broker, but has nothing to do with paying the broker's fee.

The fees are about to not be that high, this rule change just passed this week.

The landlords are about to care about broker fees now that they are the ones getting ripped off. I suspect that the entire landlord broker industry is about to cease to exist overnight. It will look a lot like rentals in most other American cities where no such job exists, and finding a tenant is all handled by whoever manages the property.

It seems foolish of landlords not to care, though. Whenever there is some surcharge (commission, tax or whatever) you have to see it as the transaction paying it out. Not party A or party B. Both are robbed by the value extraction. A buyer who is made poorer cannot pay as much for what is being sold. A seller who is made poorer needs to ask more to make up for the loss.

If I'm renting out a place, and it turns out that the renter is being charged some exorbitant $2000 fee, that would severely bother me. I would advise the tenant not to pay, and give them the place anyway. The crooked broker could then try to get it from me; at most I'd give them $200, take it or leave it.

Actually, another thing, the current system described creates an opportunity for fraud. What if the landlord and broker are not at arm's length? A landlord could set up a fake brokerage operation and just pocket the fee.

If we frame the new law as not "landlord pays the fee", but "tenant does not see a fee (unless they retain a broker themselves)" then in that light it makes even more sense. If the tenant does not see a fee, then there is no space for such collusion.

That's a matter of opinion, of course. American society is largely based on figuring out how to screw over as many people as you can so you can maximize your personal profit, so as a result many, many Americans think "caveat emptor" is a great way to run a society.

Renters negotiate the rent with the landlord. They don't negotiate the agent fee. They have to pay it or waste more time searching for another apartment with the risk of another agent charging an unknown and unaffordable fee.