By Adam Frisch, Managing Principal, Lee & Associates Residential NYC
As the principal of a residential brokerage in New York City, I have thought long and hard about the potential new law regarding caps on residential brokers’ fees. The bill would prevent brokers from collecting fees greater than one month’s rent of the apartment in question. Brokers would also have to provide itemized lists of exactly what their fees include.
In New York City, there are a few different ways that an apartment can be listed. There are open listings, where multiple brokers attempt to find tenants for an apartment and the one to do so will earn a commission which is paid by either the tenant or the owner. Then, there are exclusives where only one broker is involved for which the commission is paid by the tenant and ranges from one month’s rent to 15 percent of the annual rent. Lastly, there are co-broke exclusives for which the tenant pays the commission which is usually about 15 percent of the annual rent. Fees on co-broke exclusives are rarely negotiable as they are being split by two people.
If this bill were to become law, brokers would no longer be able to collect the same fees for services in the cases of exclusives where the tenant pays the fee and there is only one broker involved. Thus, many brokers would probably stop showing these apartments altogether. For co-broke exclusives, most people wouldn’t be interested in splitting only one month’s rent with another person so many brokers would stop showing these apartments as well. As you may be able to gather, this law would likely result in a sizable decrease in the number and quality of apartments to which the public would have access. The majority of the New York City workforce works long hours and so they rely on the services of a broker to find them an apartment due to a lack of time. If brokers stopped showing numerous apartments, it would take much longer to rent the units, leaving many sitting empty.
Bills such as this are tantamount to imposing wage and price controls on the free market. Nobody is forced to use a real estate broker and consumers searching for an apartment are willing to pay people who provide them with quality help. Although certain members of City Council seem to think that such legislation is helpful to tenants, in reality, it hurts them as it makes it more difficult for people to access the insider knowledge of brokers and decreases the number of suitable apartments that are available to them.