Rental brokers lay out case against Council bill

Legislation would prevent landlords from demanding applicants pay brokers.

A bill to spare apartment seekers from having to pay rental listing agents hired by landlords is strongly opposed by the brokerage industry, which believes it would suffer a financial hit.

But in arguing against the measure, the industry says the law would also harm consumers.

New York buildings Shutterstock_76741648 Brokerage executives and agents warn of fewer and less detailed online listings, higher rents and less knowledgeable rental brokers if the city enacts Council Member Chi Ossé’s bill to place the burden of payment on the hiring party.

“We’ve been going in a particular direction for 10 years,” said Bruno Ricciotti, co-founder of Bond New York, explaining that the rental market has become more transparent with the rise of online listing platforms. “This will be reversing that and that’s exhausting for me. … We like the way it is now.”

Many apartment hunters don’t. The standard broker’s fee is 15 percent of the annual rent. Given other move-in costs such as moving expenses and a security deposit, relocating can be a large financial burden. That gives tenants less leverage when negotiating renewals.

But industry players say consumers generally misunderstand how the process works. Typically, landlords give certain agents permission to post a rental online as a reward for being productive. If landlords are put on the hook for paying, they would stop hiring those agents to represent the listings and the ads would disappear, say critics of the bill.

As a result, landlords would lack an incentive to work with the same agents, so agents will be less able to answer prospective tenants’ questions about a unit.

Douglas Wagner, director of brokerage service at Bond, said the bill would return the industry to the early days of online listings, when Craigslist was the dominant advertising site and “almost every listing was a neighborhood ad.”

“It was all very confusing and mysterious,” he said. “The transparency the marketplace has created over the last decade will become obscured in a matter of days or weeks.”

StreetEasy did not respond to a request for comment.

The tight rental market has given landlords more leverage to pass broker fees along to applicants for apartments. But Ricciotti said the bill is unnecessary because as the market cools, the number of no-fee units will increase.

“It seems like there’s this misunderstanding that the way that the market is at the moment is the way that it always is,” he said. “It fluctuates quite dramatically, just from season to season.”

He added that in the quarter century his business has done rentals, “it kind of settles around the middle.”

If the city requires landlords to pay their rental brokers, they will likely recover those costs by raising rents. Moving in would be cheaper, but remaining in a unit for years would become more expensive. Adrienne Roberson, an agent at Douglas Elliman, said that would disincentivize long-term tenancy.

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Sophia Gilbukh, assistant professor of real estate at CUNY, agreed that the bill would raise rents, but said the bill could also benefit tenants. She said they may be able to negotiate broker fees more aggressively (if landlords are not paying them) and that the changes could eventually lead to lower rents in slow markets.

“The way it works right now is the landlord passes [the broker fee] onto the tenants directly so they have little incentive to negotiate it. … By the time the tenant has found the apartment they like, it’s kind of a sunk cost,” said Gilbukh.

She noted that the proposed law would cause some owners to reduce rents because no-fee rentals would already be universal.

“When it’s harder for landlords to find tenants, they used to use this no-fee strategy to attract more tenants, but now they’ll actually have to lower the price,” the professor said.

Ossé’s office pushed back against the industry’s claims. A spokesperson for the Council member said that if tenants end up paying for a broker, they will at least be hiring someone who represents their interests.

“We expect that landlords will continue to list their properties on platforms like StreetEasy and will contract a broker to help improve their listing if they feel it would help,” said the spokesperson. “Tenants who see a need for a broker’s services will seek out and hire a broker and then pay a broker’s fee, much as they pay a broker’s fee right now.”

The spokesperson went on to say that “nothing can ‘automatically’ increase rent” because “rents are set by the market, not by broker fees, so landlords and tenants would still find an equilibrium price point as they always have.”

The median Manhattan rent last month was $4,268. A tenant paying the first month’s rent, a security deposit and a 12 percent broker fee for such an apartment would need $14,700 to move in. (Tenants can reduce the amount by using companies like Rhino and TheGuarantors, which pay the deposit on behalf of tenants in exchange for a non-refundable fee or a low monthly charge.)

City Council Speaker Adrienne Adams has not taken a position on the bill, according to her office.

Rental agent fees have been in the news since late June, when REBNY began mobilizing against Ossé’s bill three days before it was introduced.

The bill reignited a debate that shook up the industry in 2020, when the New York Department of State shifted the burden of payment to landlords. Five days later the industry won an injunction against the decree while the matter was litigated. Later that year, Albany Supreme Court Judge Susan Kushner ruled in favor of the industry.

Source: The Real Deal