When The New York Department of State unexpectedly banned the collecting of landlord broker fees from renters earlier this month, the industry predicted – correctly – that rents would go up to compensate. In fact, according to some digging around by PropertyClub, they already have, despite the temporary restraining order on the fee ban.
However, tenants will still come out on top if the ban remains in place, the study found, because the savings from not having to shell out the standard 15 percent of the annual rent are still higher than than the bump in the rent from knee-jerk increases.
After crunching over a week’s worth of data, which included over 7,000 listings by various firms, PropertyClub found that the average New Yorker would save close to four thousand dollars, even if landlords increase rents.
For those who missed it, the Department of State announced a previously unmentioned aspect of last June’s sweeping rent reforms, stating that real estate brokers could no longer collect broker fees from tenants if they were hired by the landlord. The Department of State clarified that brokers can still charge commission fees, but the landlord must pay the fee unless the tenant hired the broker. Groups including REBNY and the New York State Association of REALTORS, Inc., have already filed a lawsuit, which resulted in the temporary restraining order.
According to PropertyClub’s findings, here’s how rents were impacted, although they noted the numbers could change again if the DOS guidelines are upheld.
Affected apartments saw average rent increases of 6.1 percent. Existing no-fee listings were obviously not impacted by these new changes, but listings that went from having a broker fee paid by the tenant to the landlord covering the broker fee showed significantly higher numbers. Roughly 10.6 percent of the properties the study looked at showed an increase in rents of 10 percent or more, while close to two percent of properties showed an increase of over 15 percent. More than 70 percent of properties saw a rise in price equivalent to less than one months’ rent, or 8.33 percent.
Citywide, the highest increases were seen in Brooklyn (6.4 percent) and Queens (6.1 percent), followed by Manhattan (5.9 percent) and the Bronx (5.7 percent).
Looking at different property types, rents have risen 8.4 percent on affected multifamily units and 7.1 percent on townhouses. Co-ops increased by 6.4 percent, followed by rental buildings (5.9) and condos (5.4 percent).
Properties listed by major companies such as Compass, Elliman and Corcoran, showed an average increase of 7.2 percent, compared to an increase of 5.5 percent on listings from all other brokerages. Compass listings showed an increase of 6.7 percent, while Elliman listings saw a 7.4 percent increase and Corcoran listings saw a 7.8 percent increase.
With New York being an exception rather than the rule in having tenants pay landlord broker fees, the ban is being seen as a major victory for tenant advocates, who’ve also successfully capped apartment application fees at $20.
Additionally, in the over 1,000,000 rent-regulated apartments in the city, those tenants are protected from the aforementioned rent increases. They are only subject to increases issued by the Rent Guidelines Board.
The most significant changes following the broker fee ban, at least so far, seem to be in East New York, where average rents on affected listings are already 10.4 percent higher, and Harlem, where there has been a 10.9 percent increase. Hamilton Heights, Williamsburg, Bed-Stuy, and the Lower East Side are not too far behind, each showing an increase of over eight percent. However, even in the neighborhoods where rents on affected apartments are already over 10 percent more expensive, New Yorkers will end up actually saving money if they no longer have to pay a broker fee, according to PropertyClub.
Moreover, the broker fee ban in these neighborhoods will help renters save a combined $256 million a year.
The biggest difference would be in Battery Park City, where renters would end up saving $7,413 if they’re not required to pay a broker fee when they move in. In this neighborhood, the 15 percent broker fee amounts to $10,017. In Tribeca, where broker fees amount to $10,154; here, tenants would end up saving $5,280, even with a higher rent.
The biggest rent hikes so far have occurred in East New York (10.4 percent) and Harlem (10.9 percent) but even there, renters not paying a broker fee would save over $1,000.
If the fee ban sticks, PropertyClub predicts that landlords will start offering better deals on longer leases, having already seen some evidence of this.
“Having landlords pay broker fees changes the game completely,” said PropertyClub CEO Andrew Weinberger. “Nowadays, if you’re signing a one-year lease and paying a 15 percent broker fee the landlord knows that raising the rent in year two will be relatively easy, as the typical three percent increase pales in comparison to the broker fee and moving expenses you paid to move in,” explains Andrew, “but if the landlord is responsible for covering the broker’s fee, tenants are in a much better position when negotiating a long term lease or a renewal.”