NYC Outlaws Broker’s Fees For Renters

If fees are outlawed, only outlaws will earn fees? New York City went through some quirky supply and demand for rental apartments decades ago. It brought out the well-intended micro-management of the market with rent control and stabilization laws, which begat a series of unintended consequences and very deliberate efforts to circumvent the law.

One such quirk was the creation of a real estate industry geared toward finding people rental apartments. Building owners didn’t need them, as a “reasonably priced” apartment put on the market for rental was snapped up within hours. The market was that tight. The people who needed someone to both do the legwork and have their finger on the pulse of rental availability were the wannabe renters.

This gave rise to another peculiar anomaly. While the fee for real estate agents who sell properties was, and remains, traditionally paid by the seller, the fee for rental agents was paid by the buyer. It was normally a month’s rent, but if the market would bear more, more it was. And if you wanted a real estate agent to find you an apartment, you paid, because anything else left you at the mercy of doing it yourself.

It’s not that people liked paying. Who likes paying? It’s that the alternative was untenable, as it left renters either with doing the work themselves (ugh) or always arriving a minute after that great apartment was just rented (double ugh). So New York fixed the problem.

In New York City’s intensely competitive rental market, tenants usually deal with middlemen known as brokers, who have near absolute control over apartment listings, viewing appointments and leases.

In return, brokers collect fees that can be as much as 15 percent of the annual lease, typically paid in one lump sum by tenants before they can move in.

But late on Tuesday, New York State effectively eliminated them.

In an unexpected addendum to last year’s rent laws, state regulators said renters can no longer be charged broker fees, potentially upending the market and delivering the latest blow to an industry already reeling from new regulations and sweeping tenant protections.

Nobody saw this coming. Nobody knew. But when it happened, the insipid cheered! If you’re poor, paying a broker’s fee for a rental was an onerous burden. It was unfair, because all costs are unfair when you’re the person paying them. But there is another pair of words worthy of remembering beyond supply and demand: cause and effect.

The assumption of the puddle people is that outlawing broker’s fees imposed on inchoate renters will mean that landlords (who, as everyone knows, are inherently evil as if buildings would arise from the scorched earth on their own without them) will pay the fees. Yippee!

Except if landlords were to cover the fees, they would build it into the cost of the rent, to the amenities, to something, because they didn’t invest in real estate as a charitable venture. But it’s unlikely that landlords will be constrained to make even this small effort to recapture their costs. After all, apartments are a scarce commodity. They don’t call the rental market “intense” for nothing.

When a decent, and decently priced, apartment becomes available, the landlord need only mention it in passing and someone will find their way to his doorman. But if that someone isn’t you, then you’re just as homeless home-challenged as before. Except now, there’s nowhere to go, no one to turn to for help.

Are those evil rental agents just greedy? Well, sure, but that’s neither the point nor much of a reason for them to work for love. They want to earn a living too, and if potential renters can’t pay them and landlords won’t, it’s time to brush up on their coding skills or find a way to circumvent this new “crime.” It seems fairly obvious that the mechanism to avoid the consequences of being forced to wear Gucci clothing is to establish “renter’s agents” and charge a fee not for finding an apartment, but merely for taking up the task of looking on behalf of a hopeful renter. In other words, you won’t pay a percentage of the annual rent, or even one month’s rent, only when they fulfill their job of finding an apartment, but require a fee to be paid to “hire” them to do so.

So you pay up front and, maybe, end up with a rental. Or maybe not, and end up having paid a fee for nothing. Hey, satisfaction cannot be guaranteed, you know. But that hasn’t stopped the woke from ignoring cause and effect and cheering their pocketbooks.

Some tenant activists rejoiced the new guidance, saying it would help reduce the barriers for housing for many tenants and potentially reduce New York’s growing homeless population.

“It’s about rehousing 92,000 homeless people,” said Cea Weaver, the campaign coordinator of Housing Justice for All, a statewide coalition of tenants that pushed for the new rent laws. “Hopefully, it’ll make it easier for people being pushed from substandard housing to substandard housing.”

Hope springs eternal. Reason, not so much. There is nothing about this law that will inure to the benefit of the homeless and the poor, ironically pushed out of their outerborough housing by hipsters moving into neighborhoods in Brooklyn without baristas, whereupon they demand Starbucks open up on the corner where a bodega used to be.

And even if it worked out the way the woke hope it will, it would create a problem only AOC could love.

Most significantly Mr. Martin said, the changes could lead thousands of real estate brokers to lose their jobs.

“I don’t think it’s hyperbole to say that,” Mr. Martin said.

There were more than 25,000 licensed real estate brokers in New York City as of early 2019, according to New York’s Department of State.

The apartment rental industry in New York City was invented by necessity, and for the people who earned their living as agents for rentals, they were providing a service that people needed. It’s not a crime to fill a need, and it’s not a crime to earn a living doing so. Until now, since New York “fixed” the problem.


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11 thoughts on “NYC Outlaws Broker’s Fees For Renters

  1. Keith

    It seems fairly obvious that the mechanism to avoid the consequences of being forced to wear Gucci clothing is to establish “renter’s agents” and charge a fee not for finding an apartment, but merely for taking up the task of looking on behalf of a hopeful renter.

    What a novel new industry. I wonder if match.com has been snapped up, yet.

  2. Hunting Guy

    Robert K. Merton.

    Why the law of unintended consequences works is that the framers of a social change are either ignorant of possible far reaching effects of the law or make errors when they develop a change that doesn’t have the effects they desired.

  3. MIKE GUENTER

    Somewhere in the vast labyrinth of government offices in NYC, some enterprising bureaucrat is salivating at the prospect of the sweet graft to be made when they invent the new “Rental Control Agency.”

    There will still be “broker’s fees”, but they will be collected by the RCA and couched as a tax and purportedly be used to “help the homeless and poor.”

    1. SHG Post author

      There is no shortage of ideas how the care and feeding of the homeless could be served by the imposition of burdens on the evils, whether the wealthy, landlords or builders. They can add this to the list.

    2. Curtis

      I imagine this was the plan. There will be an RCA fee levied on all landlords promoted as a way to solve the homeless problem. Landlords will be required to register with the RCA which will track vacancies and tenants accepted by each landlord. It will be done to ensure that there is no discrimination not counting the RCA’s preferences given to the right kind of tenants.

      And best of all, the RCA is free!

  4. GBarry

    The articles I read about this new law state that tenants can still hire a broker to find them an apt, and would pay such a broker’s fee. This new law just eliminates rent-seeking behavior – if the broker is not needed, why should prospective tenants have to pay them? If a broker’s services are needed by a would-be renter, they can hire a broker. And if landlords find some value in using a broker to find tenants, they are free to reflect that cost in the rent. Sure, brokers are denied a source of money for nothing, but they can still earn their money the old-fashioned way – by providing services to people willing to pay for such services.

  5. Chris

    The results of this are trivially predictable. I am constantly surprised at the number of people that spend absolutely no time thinking about the consequences of their actions.

    I’d bet 2:1 odds that the profits from brokers will increase substantially so they don’t actually have to deliver anything to get paid! Which will lead to another set of regulations limiting what brokers can do.

  6. Charles

    “We’re from the government and we’re here to help. Just remember, we’re not satisfied till you’re not satisfied.”

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