NYC bans unusual practice of forcing tenants to pay real estate brokers hired by landlords

NEW YORK (AP) — Mandatory broker fees, an unusual feature of New York City apartment hunting long reviled by renters, will be banned under legislation that passed Wednesday after overcoming fierce backlash from the city’s real estate lobby.

Under a system that exists in New York and almost nowhere else in the country, tenants are often forced to pay the commission of a real estate agent before moving into an apartment, even if that agent was hired by the landlord.

The fees are steep, typically totaling as much as 15% of the annual rent, about $7,000 for the average-priced New York City apartment.

The legislation passed by the City Council aims to stop landlords from saddling tenants with those payments — at least as an up-front fee. Though tenants may hire their own representatives, they will no longer be forced to pay for brokers that solely represent the interests of their landlords.

In a city where two-thirds of households are renters, the bill is widely popular, a rare piece of municipal legislation championed by influencers on TikTok. It has also triggered opposition from brokers and their representatives, who warn it could send shockwaves through an industry that employs 25,000 agents.

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“They spent hundreds of thousands of dollars to lobby our politicians to try to kill this bill and try to force you to pay broker fees,” Councilmember Chi Ossé, a Democrat who sponsored the the FARE Act, said at a rally Wednesday. “But you know what we did: We beat them.”

New York’s broker fee arrangement dates back nearly a century to a time when agents played an active role in publishing listings in newspapers and working directly with would-be tenants. The commission structure is also found in Boston, but few other parts of the country.

But with most listings now published online, and virtual or self-guided tours gaining popularity since the COVID-19 pandemic, many New Yorkers have grown increasingly frustrated by the fees.

At a City Council hearing this summer, multiple speakers recalled shelling out thousands of dollars to a broker who seemed to do little more than open a door or text them the code to a lockbox.

“In most businesses, the person who hires the person pays the person,” Agustina Velez, a house cleaner from Queens, said at that hearing. She recalled paying $6,000 to switch apartments. “Enough with these injustices. Landlords have to pay for the services they use.”

Brokers counter that they do much more than merely holding open doors: conducting background checks, juggling viewings and streamlining communication with landlords in a city where many tenants never meet the owners of their buildings.

“This is the start of a top-down, government-controlled housing system,” said Jordan Silver, a broker with the firm Brown Harris Stevens. “The language is so incredibly vague, we actually have no idea what this would look like in the world.”

Others opposed to the bill, including the Real Estate Board of New York, say landlords will bake the added costs into monthly rents.

But some New Yorkers say that would be preferable to the current system of high up-front costs that make it hard to move.

“From the perspective of a tech investor and business owner in New York City, the more we can do to make it cheaper and easier for talented young people to come here and stay here, the better off we’ll be,” entrepreneur and bill supporter Bradley Tusk said in a statement. “Anyone who has paid 15% of their annual rent in brokers fees for someone to let you in an apartment for 10 minutes knows the practice is nothing more than legalized theft.”

Mayor Eric Adams, himself a former real estate broker, has raised concerns about the legislation and possible unintended consequences.

“Sometimes our ideas are not fleshed out enough to know what are the full long-term ramifications,” he said this week, adding that he would work “to find some middle ground.”

But he will have limited leverage in doing so: The legislation passed by a vote of 42 to 8, a veto-proof margin. It takes effect in six months.