The FARE Act is not likely to result in steeply higher rents for new leases
- REBNY and other trade groups argued that landlords will roll broker fees into rents for new leases
- A new StreetEasy report suggests 'landlords are unlikely to fully amortize the additional costs'
Sources tells Brick that renters signing new leases after the broker fee law goes into the effect will likely only feel minimal increases—and some will see no increase at all—as a result of the new law.
iStock
Some brokers opposed to New York City’s broker fee bill argued it will raise rents significantly for new leases, but that outcome does not seem likely.
The Fairness in Apartment Rentals Expenses Act, which passed a City Council vote in November, shifts the long-standing burden in New York City of paying the broker fee from the tenant to the landlord who does the hiring. Opponents including The Real Estate Board of New York and other broker organizations lobbied against the legislation with claims that landlords would add broker fees to the rents they charge for new leases, in essence creating higher base rents that long-term tenants would pay in perpetuity.
The New York Times quoted several brokers who painted a dire outcome of the new law, including one who described a hypothetical scenario with a landlord choosing to raise the monthly rent by 7 to 10 percent to compensate for paying a broker fee. Broker fees are typically 12 percent but can be as high as 15 percent of the annual rent.
The impact may not be so dramatic. Sources tell Brick that renters signing new leases after the broker fee law goes into the effect—sometime in the spring—will likely only feel minimal increases—and some will see no increase at all as a result of the new law (rents may still rise as result of demand). A new report from StreetEasy also concludes that the FARE Act is unlikely to result in sharply higher rents.
“There’s been a lot of fear mongering,” said Allia Mohamed, co-founder and CEO of apartment listing and review platform openigloo. A prediction that the FARE Act would lead to higher rents across the board is the main argument against it, but Mohamed doesn’t see that happening.
“No one has a crystal ball,” she said, but even so, “rents are not going to skyrocket by 15 percent.”
If some landlords roll a smaller amount into the rent, it still is a better deal for renters, she said, because it removes a significant upfront cost. Paying the entire broker fee at the start of the lease, on top of the first month’s rent and security, can be prohibitive.
Even if owners raise rents by 5 percent, “I still think the renter is better off because they don’t need to pay this upfront.” Mohamed doesn’t think owners would raise rents more significantly than that.
“It’s very unlikely that a landlord will get away with baking in a 10 percent rent increase. Landlords know they cannot pass on all their costs to renters—it’s something they talk about all the time,” she said.
The reason: There’s isn’t enough demand at those price points, she said, echoing a statement made by Council member Chi Ossé, who introduced the FARE Act, at a rally prior to the City Council vote: “If your landlord could have increased your rent tomorrow they would have done so yesterday.”
Removing the ‘lock-in’ effect
In its recent report, StreetEasy analyzed rental data from January 2012 to October 2024 and found “rental properties that stopped charging tenants a broker fee did not increase asking rents beyond broader market trends.”
Units that became no-fee between 2022 and October 2024 saw a 4.2 percent average annual increase in rent for a new renter, while units that continued to charge a broker fee saw a 6.1 percent jump, the report said.
Requiring renters to pay the broker fee leads to sharper rent increases when the unit turns over due to a lock-in effect, explained Kenny Lee, StreetEasy economist and author of the report. When renters pay a hefty broker fee, it encourages them to stay put “to amortize the upfront costs over a longer period,” he wrote.
Once the FARE Act is enacted, some landlords will take over leasing responsibility and some will continue to hire rental agents and compensate them directly, the report noted.
“In either situation, landlords are unlikely to fully amortize the additional costs associated with this change, as history suggests that landlords set asking rents based on market conditions rather than the expenses of this activity,” Lee wrote.
No impact on direct deals
“No one knows exactly how this will shake out,” said Phil Horigan, founder of apartment listing platform Leasebreak. But one subset of owners will definitely raise the rent because they don’t have the ability to handle leasing on their own. They will roll the new cost into the rent and Horigan doesn’t expect the impact to be dramatic.
“I don’t think this is as bad as some brokers are saying,” Horigan said, adding that the FARE Act could prompt more owners to shift to direct deals.
The new legislation is awaiting Mayor Eric Adams’s signature, and the mayor has said he will not veto it, acknowledging that it passed with a veto-proof majority of 42 to 8. After the FARE Act becomes law, it has 180 days to go into effect.
Horigan said that the law helps clarify the relationship between owners and brokers. Renters will be able to see how much brokers are being paid by the landlord. The FARE Act requires owners to tell tenants the cost of the fee in apartment listings and lease agreements. The fine for violating the law is set at $2,000.
All eyes on stabilized apartments
“A large percentage of landlords we work with are paying the commission,” said Andrew Barrocas, CEO of brokerage firm MNS. That means renters who lease from these landlords will not see rent increases as a result of the FARE Act.
He pointed out that the FARE Act could make an even bigger difference for renters seeking rent-stabilized apartments. Some brokers are able to request exorbitant fees for these units because they are in such demand. Rent-stabilized tenants benefit from limits on rent increases and automatic renewals so they are willing to pay these fees, he said.
Legally, “excessive” broker fees are not allowed. Case in point: City Wide Apartments was forced to pay $260,000 in penalties for charging sky-high fees, including a $20,000-plus commission on a rent-stabilized Upper West Side apartment in 2022.
Even though FARE Act wouldn’t allow it, Barrocas maintains you may still encounter a broker who requests a $10,000 fee from a renter for a $2,000 rent-stabilized apartment, he said. And there will be renters willing to pay it—or more—to get the apartment, he added.
You Might Also Like
