If you’re at all tapped into the New York City real estate market, you’ve probably seen the headlines about rental broker fees being no more.
A little backstory
As Inman’s Patrick Kearns reported:
New York State regulators unexpectedly released updated guidelines in the wake of last year’s sweeping rent reform laws passed by lawmakers. The adjustments include a total ban on broker fees associated with rental apartments.
In February 2019, a set of New York City lawmakers, led by Councilman Keith Powers, attempted to pass legislation that would limit brokers’ fees to one month’s rent. In pricey neighborhoods, a broker’s fee for a renter could be as much as 15 percent of the annual rent, due at the time of the lease signing.
The ban goes further than Powers’ proposal.
“No, a landlord’s agent cannot be compensated by the prospective tenant for bringing about the meeting of the minds,” guidance from the New York State Department of State reads, clarifying that no broker fees can be charged.
Cue brokers’ and associations’ dismay and renters’ applause. Although renters will save more on the front, it will likely come back to them in the form of higher rent.
Getting into the nitty-gritty
Although there is definitely much interpretation continuing to be made with the new regulations, there is no doubt that there is still a need and value for real estate agents in this city. Especially now, agents should be helping clients debunk the myths and see the truth.
In fact, defining an agent’s relationship with their client is not a new regulation, as the New York Department of State (DOS) disclosure form has already been required. But it is especially important to continue this practice.
It lets the client know where the agent’s fiduciary responsibility lies, either with the landlord, tenant or if they are dually representing the client.
You wouldn’t walk into a courtroom without knowing which lawyer represents you — and this is the same concept — except there’s no retainer required!
The big change that the disclosure form emphasizes now is the change in fee structure. Prior to this new rule, a landlord was not responsible for paying the agent who represented their property. Now they are. The burden of the broker fee has been shifted to the landlord instead of prospective renters.
Now renters only pay broker fees if a broker helped them to find an apartment.
What does this mean for clients? They have to go directly to that listing agent if they do not want to pay a fee. That will cost them time, energy, and extra work on their own to learn the market, understand and complete the complicated rental processes, negotiate, and beat out the competition to make sure they get the home they desire. If a renter is willing to put in this work they aren’t required to pay the fee, but most renters do not want this responsibility.
So what if a client does not want to do the legwork of finding an apartment for themselves? The truth behind the headline is: They will have to pay a fee.
I’ve always equated being an agent to going to the hairdresser: I can cut, dye, and style my own hair, but for the people out there who have tried — it does not look as good as when the hairdresser does it! I walk out of that salon with flowing locks styled to perfection and I pay good money for it.
Do I like paying the price? Absolutely not! But if you’ve ever tried to cut your own bangs, you know what a disaster that turns out to be. Just like a hairdresser, a real estate agent is performing a service and deserves compensation for the efficiency, market expertise, process knowledge, and value they bring to the table. And as mentioned before, a good agent will explain and discuss the differences between a fee and no-fee apartment with their clients so they can make an educated choice if they want to use the services that will be provided.
Agents are humans too
The bottom line is that a job is a job and we all want and deserve to be paid for a job that we complete.
Why don’t clients want to pay these fees? Because they think agents are door-openers, uneducated, in it for the money, and get paid entirely too much. It’s easy for our clients to forget that agents are people that go home at the end of the day, pay bills, feed themselves and their families, pay taxes, cover their own health insurance, and generally, need money to make their world go around just like every other working person out there.
Clients don’t know or realize that the “large fee” they are paying does not all go in the agent’s pocket, as it is split with the brokerage, contributes to business expenses (advertising, marketing, wining and dining of clients, transportation, etc.) and applied to taxes and insurances as well — so it is time for us to educate clients about that. Not to mention that our fee isn’t paid until the lease is executed, which means we are working for free until our job is done.
What does this mean for the market? In a lot of ways, that is yet to be seen, but there will definitely be some disruption. Due to landlords having to pay broker fees, rent prices are likely going to increase to compensate for broker payments.
Tenants will most likely end up paying more in the long run.
Some landlords will not be able to afford to hire agents and be forced to find qualified tenants on their own. Or they may not be able to absorb the new cost at all. That may put some of them out of business. Clients will be forced to find their own apartments without representation for themselves, which leaves them at a disadvantage when negotiating with the landlord and the landlord representative. Clients have to begin asking themselves: Does saving a dollar really benefit them in the long run?
Clients should be fully aware of the implications of these regulations and how it will affect the agents, landlords, the market in general, and most importantly, themselves. If clients are going to treat their hardworking agents just as a dollar sign, they can’t expect agents to treat them as anything more either.
As agents, we need to tell our clients the truth behind the catchy headlines. That is, to get the best agent to represent their best interests, they should pay agents for our expertise, value, and ultimately, the full completion of job well done.