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Broker fee ban for renters: A New York City real estate broker responds.

Broker fee ban for renters: A New York City real estate broker responds.

A new ban on brokers’ fees has the New York City real estate community on edge.
Spencer Platt/Getty Images

On Wednesday, regulators effectively eliminated one of the biggest obstacles to renting an apartment in New York City: broker fees. Tenants in the city have often had to deal with middlemen contracted by landlords who effectively control apartment listings, viewings, and leases. Even if renters find their own apartment online, they can still be required to pay landlords’ brokers upfront—an amount that can range from an extra month’s worth of rent to 15 percent of the lease. That’s in addition to paying the first month’s rent and a security deposit to the landlord.

In a surprise addendum to the sweeping rental laws passed last year, regulators determined that renters can no longer be charged broker fees, eliminating one more barrier for tenants who don’t have the extra income to afford them. City renters praised the news. Brokers, on the other hand, were left reeling from yet another change that upended their entire business world, with two industry groups filing a lawsuit to oppose the rule.

Slate spoke to one broker at Nooklyn, a Brooklyn-based real estate agency, who wished to remain anonymous. She estimates that she makes around $5,000 per year from broker fees—and notes that that’s much less than brokers at many other agencies make. This interview has been edited and condensed for clarity.

What was your reaction when you heard about this—not a new ruling, but a new interpretation of a ruling?

My initial reaction is a little confused, to be honest. I’m not necessarily opposed to it. As a human being, I understand it. But I think that it, like most of these laws that have changed since July, is having a lot of adverse effects that these lawmakers are not understanding. It’s very much clear to me that a lot of these lawmakers don’t have a real sense of how this business works in this city, because they’re also harming New York residents with some of these laws.

There are some cases where no broker fees is going to be really helpful for people. But for a lot of people, it’s only going to raise rent all across New York City. I think it’s going to hurt small landlords, like small homeowners in New York City, lifelong New York residents who own a two- to three-family home who can’t afford to pay the broker’s fee to get their units rented.

You said that in some cases it’ll be helpful. What cases would those be?

My brokerage carries a majority of no-fee listings, so it’s always kind of been part of my morals as a broker. I really don’t like collecting a broker fee. I usually work with owners who pay the broker fee. There are some cases where [renters] should pay the broker fee, because it’s going to be a better deal for you in the long run. In most cases, the people that [the rule change] is going to help are people who can’t afford to put three months upfront to move in. That’s a lot of money for a lot of people. First month’s [rent], security, and broker fee, it’s a lot.

Something that I think is really good that had been passed previously or they were trying to pass was that brokerage fees can’t be over a certain amount. Right? I think that they were trying to pass something to the effect of like a broker fee can’t be more than one month’s rent. I think that makes a ton of sense. My commission is based off of one month’s rent. But in general, the landlord’s going to pay us. My first Manhattan apartment, the commission was 15 percent of the year[’s rent]. That’s insane.

What would you say the general vibe is like among real estate brokers in New York right now?

It’s not good. I think I started at the very tail end where it was very easy to make money in this business. And pretty much since I started it’s just been law after law or change after change that’s making the job a lot harder or less lucrative or whatever. A lot of the changes that are happening, morally I don’t necessarily disagree with, but it’s definitely something that probably means I won’t be able to just continue. The brokerage community and the real estate community is drowning right now. My advertising costs—I was paying $50 a month to advertise. That’s two years ago. I’m now paying a minimum of $700 a month to advertise listings now. And in the summer, it goes up to about $2,000 a month to advertise my listings. This is not something that my brokerage pays for.

I think a lot of people are leaving this business. A lot of brokerages are going to go under. I think more than anything it’s just going to stress Manhattan. I think Brooklyn has more so gotten on board with the no fee thing. Manhattan is going to struggle. People are angry because brokerages either can’t or won’t help their brokers right now and their sales agents right now, monetarily like they need to be. And all these laws are hitting owners, they’re hitting brokerages, and then they’re also hitting sales agents. It’s hitting every facet of the community.

You say you agree with these laws morally. Do you think that, despite the short-term shockwaves, overall this will end up being a net positive?

I don’t know that I’m smart enough to see that far ahead right now. I think the reason a lot of other communities don’t work like this is because most other cities don’t have this complex of an infrastructure when it comes to housing. I understand progress and moving forward and adjusting and putting tighter restraints on brokerages for sure. I totally understand that, but I think it’s swinging too quickly and too far to the other end. More than anything, it’s going to hurt tenants. Not all tenants, but if you have below 700 credit and you don’t make over 40 times the rent, you’re screwed.

Could you explain that a little bit more?

Manhattan sometimes can be a little stricter than this, but for the most part where I work all over Brooklyn, you need to make 40 times the rent and you need good credit [to be approved to rent]. Usually that is 700 and above. With the right landlord, I can swing 650 and above at times. But the tenant laws are so strong in New York, which is wonderful. It’s very hard for a landlord to evict someone and it takes a very long time, so New York landlords are already very strict on who they let qualify for their apartment.

There used to be wiggle room for people who don’t have 700 credit or who don’t yet make 40 times the rent. The easiest way is with a guarantor, right? Like a mom or dad or an aunt or somebody who’s willing to say I vouch for this person and we’ll pay their rent if they don’t pay the rent. But again, that’s a very privileged thing to have. And there’s a lot of marginalized communities in New York City who need to have housing who don’t have 40 times the rent, good credit, or a guarantor with 60 times the rent to cover them.

What sometimes would help with those things, the wiggle room would be, maybe if you offer them an extra month[’s rent] up front. Pay first, security, and last, or maybe you offer two months up front. It makes the landlords feel more secure about letting you in and getting approved for the apartment. Part of these laws that changed is you can only collect first and security. They’re trying to protect New Yorkers by doing that. I understand why they’re doing it. They’re trying to make sure that landlords aren’t gouging people and saying, well, I need six months upfront. The problem is now for anybody who has bad credit, there’s no way to get them approved. I can’t help them. And especially international people, right? They don’t have credit, so one of their only ways then is an American guarantor, a U.S. guarantor, or collecting multiple months upfront, which I now can’t do. So, it’s hard to get international students housing now. A lot of these laws are changing and really affecting all of that.

When it comes to the brokerage fee, yes, I just think that landlords are going to raise rent. They’re trying to put restrictions on that, like with how much you can raise rent per year. But there’s just, they’re all loopholes that are happening in New York City to get around that. I don’t know if you know net versus gross rent is. It’s something that’s really common now where the landlords are saying, “Well, I’ll offer you a month free off of rent.” Like my building offered me two months free off of my rent. My rent is $3,050 a month and they offered me two months free on a 14-month lease. The gross rent is $3,050. When you take two months free off of my rent and you divvy it up throughout the 14 months, I’m really paying something to the effect of like $2,700 a month, that’s the net rent. That’s a loophole of how these landlords are getting around the incremental ranked rent increases. I didn’t pay a brokerage fee to move into this building, but my brokerage fee was completely folded in to all of the rent I’m paying, to the month free that I’m paying. All of those things. And after my first year here, they are allowed to incrementally raise the rent off of the $3,050.

How are other brokers reacting to the news?

If we’re looking at it, towards the brokerage community, it’s a devastating blow, right? It is. Just with everything that’s come at us. One thing at a time would have worked, but because of the application fee changes that happened earlier in the year, our brokerage cut all of our commissions by 10 percent, so I’m losing money there this year. On top of it, StreetEasy has monopolized this entire industry to a point that I think should be absolutely illegal, but they’re too big of a force. It seems nobody can really do much about it. They’ve increased their advertising from $1.50 per listing per day. Now they’re charging $6 per day per listing. A lot of us used to put up 10, 20 listings. We can’t afford that anymore. So then there’s another cut in my pie. And then there’s this, right? In general, I don’t collect a lot of broker fees, so I’ll survive. But Manhattan is going to crumble.

But I’m talking about it in perspective of brokerages. That’s probably not the most important facet, right? It’s just something that might be for the greater good. And I see that perspective completely. I just hope that if that’s the route we’re going here with all of these laws, that it does actually help housing for marginalized communities, for lower income communities, for all of that. Because a lot of these laws I think are only making it harder for them to get into apartments. And a lot of these laws seem like they’re only going to raise rent.

You said you made a choice not to collect broker fees that often. Is that a common choice among newer brokers?

It’s really going to depend on where you work and rent apartments. I work for a brokerage that has a lot of issues, but in general they’re pretty good about trying to be no-fee friendly. I’ve also just rented a million apartments in New York and I know I sure as hell can’t afford a broker fee. But I also primarily rent in a neighborhood that is a lot of lower to middle class, for millennials who just got out of school, who can’t afford it. I would love to say it’s just a moral thing, like I don’t believe in that, make the landlord pay it. But a lot of it is just also, I know my clientele can’t pay it.

Have you seen more landlords moving toward paying their own broker fees?

Yeah, definitely. I live on the border of Williamsburg and Bushwick. Most of my clients [live in] Bushwick, Ridgewood, Williamsburg, Greenpoint, Bed-Stuy, those kinds of areas. Even in the last two years it’s come pretty far. But my small landlords, which tend to be some of the best apartments because they’re usually giant, 75 percent of them don’t pay the broker fee because they can’t. It’s expensive.

What’s the alternative if they can’t pay the broker fee?

I guess the alternative is maybe more owners will rent out their stuff their self. Maybe they won’t hire a broker. That’s part of what I’m wondering. It’s going to be a learning curve for them. And the big landlords will just pay up. That’s my guess. But it’s going to be a large amount of work gone for real estate in the city. That, or the rents go up and the landlords cough it up.

This content was originally published here.

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