No More Rental Fees in NYC?
There are still rental fees in NYC, but the new guidance is pretty huge for the residential real estate community: landlords, agents and renters!
The Facts
On Tuesday, the New York Department of State issued Guidance that a landlord’s agent cannot be compensated by a prospective tenant. The DOS suggests that this Guidance takes effect immediately.
WHAT IS PERMITTED:
- A landlord’s agent can still collect a brokerage commission; however, they must collect from a landlord.
- A tenant’s agent can collect a brokerage commission from a tenant. Nothing changes here.
WHAT IS NOT PERMITTED:
- A landlord’s agent cannot collect a brokerage commission from the tenant.
What does this mean for current rental listings?
- Landlords and their agents need to determine how to address the new Guidance with their current listings. Increase the monthly rent, so the agent can be compensated for his or her work? Keep the rent as is, and make the landlord pay?
- If rental agents have listings and where they were planning to collect a fee from the tenant, they should not do so until further clarity is provided.
How will this change the real estate landscape in NYC?
Nobody works for free, and landlords want the same return on their investments. As a result, chances are broker fees between landlords and agents will be priced in to the rental (to the extent possible), thereby increasing the price of rentals.
If the price of rentals increases, this may alter the rent/buy equation. Could this breathe some life into today’s challenging sales market?
REBNY and other groups are fighting the guidance, but for now, it is our current reality.
Does this Guidance actually help renters?
In theory, the Guidance should help renters. After all, what renter wants to pay 15% of a year’s rent to a broker? It can be an obscene amount of money. All else being equal, yes, not allowing landlord’s brokers to collect fees from tenants will save tenants money. However, it remains to be seen where (and whether) the cost of this will be built in.
Perhaps agents will agree to smaller broker fees? As you all know, that is what we do at Digs. When we represent landlords, we always offer a reduced commission to our landlords (if they were paying our commission). Perhaps others will take this approach to help get units rented. If this is the case, renters will benefit from the new Guidance, but real estate brokers will make less and landlords will have a lower return on their investments.
Some landlords might take on the process of renting their units themselves to save the costs of a broker. This will result in a benefit to the renters at the expense of landlords (time) and real estate agents (who will have fewer homes to rent).
Other landlords may not be willing to pay their broker and receive the same rent payments. These landlords may try to rent the apartments for more, thus increasing the price to rent an apartment to make themselves whole. The result will be that tenants are still paying for the fees, just over time, rather than up front. Landlords, real estate agents, and tenants will end up in just about the same place they are now.
My bet is on the last scenario (at least for new listings). Landlords will try to get as much money as possible per month. Real estate agents will try to get as much money as possible in their fee. Landlords and real estate agents set the prices. They will set them high and hope someone will bite. Tenants may have to let units sit on the market before the other players are willing to concede.
UPDATE
As a result of a lawsuit initiated by REBNY and other real estate trade organizations, a temporary Restraining Order was granted on February 10. This order temporarily removes the prohibition against landlords’ agents collecting commissions from tenants. The case will proceed on March 13. Until then, landlords’ agents can still collect commissions from tenants.
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Digs Realty is a residential real estate brokerage in NYC that provides full service at a discount. The Digs Mission: Saving you money without compromising service. We give our home buyers up to 67% of our commission and charge our sellers up to 4% less than traditional brokerages.
