Broker Fees for NYC Rentals Legal

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Key Highlights

  • Judge affirmed broker fees legal last week
  • Whether or not broker helped tenant find listing, renter must pay broker one-time fee

NYC Tenants Must Shell Out Rent, Security Deposit and Broker Fee

We all know that New York City is one of the country’s most expensive rental markets.  Even though the median price for a one-bedroom apartment in Manhattan has dropped nearly $550 during the pandemic, StreetEasy lists the median asking price for a one-bedroom at $2,800/month.

Before tenants are given the keys to their new apartment, they must pay upfront the first month’s rent, a security deposit usually equal to one month’s rent and a broker fee equalling 10% – 15% of annual rent on their apartment.

Why a Broker Fee?

Pre-internet and pre-smartphones, brokers and landlords ran the show for available rental units.  They had to list available apartments in various publications, make/answer calls, arrange tours and take care of any and all paperwork required for lease signings.

Due to this required time investment of finding/helping the potential tenant and securing the rental transaction, brokers earned a commission for their work.  That commission was translated into a one-time fee called a broker fee.

A one-time only broker fee typically runs between 10% -15% of the annual lease and is typically paid by the renter to the broker.

As of this last week, New York State affirmed the legality of the broker fee…whether or not the broker actually helps the tenant find the unit and sign the lease.

History of Broker Fees

In fact, prior to the pandemic outbreak in NYC during late 2019, broker fees were banned in one of several laws to help strengthen the rights of tenants.

However, in February 2020, a state judge halted the ruling after the Real Estate Board of New York City filed a lawsuit against the newly passed provision to prohibit brokers fees.  The REBNYC won the lawsuit and the state reaffirmed broker fees this last week.

How Can Brokers Fees Exist in Age of Internet Listings and Virtual Tours?

Today, potential tenants find their apartment units online.

Today, potential tenants see their apartment units online via digital virtual tours and never even meet a broker.

Today, potential tenants are encouraged by brokers and landlords alike to see apartments in person by themselves for COVID safety.

Still, the REBNYC and other groups defend broker fees by saying brokers “offer a significant resource for renters.”  Those groups also say that without broker fees or commissions, brokers/agents would have no income.

As of last week, the judge who hear the REBNYC lawsuit and New York State agree that broker fees are legal.

Bottom Line

Market-based rental units in NYC are in either the “fee” or ‘no fee” category.  When units are in the fee” category, the renter knowingly pays the commission or broker fee.  In the “no fee” category, the landlord/property owner pays the broker fee or commission to the broker/agent who helped the owner with the listing.

Either way, the broker/agent gets paid.  Either way, the renter pays the broker fee even if the apartment is in the “no fee” category.

How does that work?  The property owner simply passes along the cost of the commission or broker fee to the renter by charging a higher monthly lease.

Bottom line…the broker/agent still gets paid the broker fee and the renter still pays the broker fee to the agent/broker…whether or not the renter knows it.

 

Thanks to the New York Times.

 

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