NYC considers ending broker fees for tenants, angering real estate industry

NEW YORK — It’s a familiar and painful experience for legions of New York City renters: Before a tenant moves into a new apartment, they must first pay thousands of dollars in fees to a real estate agent, even if that person is hired by the landlord.

The hefty one-time payments, known as brokerage fees, are ubiquitous in New York but virtually unheard of elsewhere. In most other cities, landlords cover the commission of real estate agents who work on their behalf.

But legislation Backed by a majority of the New York City Council, it would require landlords who hire real estate agents to pay their fees, marking a potential turnaround in one of the country’s most expensive housing markets.

Renters, who make up more than two-thirds of city households, are cheering the latest attempt at reform. At a hearing Wednesday, many New Yorkers recalled paying exorbitant fees to real estate agents who seemed to do little more than open an apartment door or direct them to a lock box.

“In most companies, the person who hires the person pays the person,” said Agustina Velez, a housekeeper from Queens who said she recently paid $6,000 to change apartments. “Enough with these injustices. Landlords must pay for the services they use.”

But the proposal has drawn fierce opposition from the New York real estate industry.

Before the hearing, hundreds of real estate agents gathered to voice their objections at a meeting organized by the Real Estate Board of New York, the industry’s powerful lobbying group.

Through hours of testimony, they warned that the legislation would sow chaos in the rental market and decimate the livelihoods of the city’s roughly 25,000 real estate agents. Many predicted that landlords would pass on the costs of paying agents to tenants through higher rents or keep apartments off the market altogether.

“This is the beginning of a top-down, government-controlled housing system,” said Jordan Silver, a real estate agent with the firm Brown Harris Stevens. “The language is so incredibly vague that we actually have no idea what this would look like in the world.”

The bill’s sponsor, city council member Chi Ossé, has said it is moved to act after a recent apartment search was “exhausting, treacherous and competitive.” Another local official, Brooklyn Borough President Antonio Reynoso, testified that he once paid a $2,500 fee to a real estate agent he never met.

Their frustration was echoed at Wednesday’s hearing by dozens of rank-and-file renters, along with a mix of unions, housing policy groups and some prominent business leaders. Critics say paying real estate agent fees creates a barrier for those who would otherwise move to the city, while keeping low-income New Yorkers from moving into new homes.

Such agency fees were banned earlier in 2020 under a package of tenant protection laws passed by the state. But they were quickly reinstated after a lawsuit led by the Real Estate Board of New York.

Real estate agencies estimate that about half of the city’s apartments require a tenant-paid agency fee. The price of these fees can vary widely, although the standard amount is 15% of the annual rent. For the average apartment in Manhattan, where the average monthly rent recently reached $4,500, that would amount to $8,100.

Under the legislation, tenants would still pay agents they hired directly. The brief language of the bill – less than 200 words – only requires the party hiring the broker to pay their fees.

“How the market works is not as simple as a few sentences, which is what the bill is,” said Ryan Monell, vice president at the Real Estate Board of New York. “It’s a misnomer to compare New York to other cities. This is truly an exceptional market.”

Real estate agents are convinced that their work is much more intensive than just opening the door for tenants. Many said they help put together listings, review applications, answer tenant questions and arrange tours at all hours of the day. But some also recognized that the current system favors landlords.

“I don’t think it makes sense. The landlord has to pay the agent who works on his behalf,” said Maria Octavio, a real estate agent with the firm Douglas Elliman. “Because it has worked this way for years, the owners are used to it.”

Anna Klenkar, a broker at Sotheby’s, said the industry group — known as REBNY — contacted her employer after learning she planned to testify in support of the legislation on Wednesday. “It feels less like we’re protecting ourselves, and more like we’re protecting landlords, which REBNY also represents,” she testified.

A REBNY spokesperson did not respond to an email asking if they had contacted the employer.

Mayor Eric Adams, a Democrat, warned that the bill could have unintended consequences. He received strong support from the real estate industry during his campaign and worked as a real estate agent for the city’s police department decades ago.