A City Council plan aimed at curbing some of the upfront costs of renting an apartment in New York City is headed toward what is likely to be a contentious public hearing this month, following strong pushback from the real estate industry.
The package of bills, introduced in February by Manhattan Councilmembers Keith Powers and Carlina Rivera, seek to reduce the burden on many first-time and low-income renters who are often surprised by upfront broker fees that often add up to thousands of dollars. New York City brokers command notoriously high commissions, ranging between 12 to 15% of the annual rent. Because demand outstrips supply, landlords in New York City have traditionally gotten away with being able to outsource the job of finding tenants to brokers while passing on the commission costs to renters.
Under the most contested proposal, renters who come across apartments that are represented by listing agents, or brokers hired by the landlord, would have to pay no more than one month’s rent in commission fees — which translates into a little more than 8% of the yearly rent.
After some misunderstanding by the brokerage community, Councilmember Powers last Friday amended the bill to state that the proposed law would not apply to renters’ agents, who are tasked with finding apartments and representing renters during the lease transaction. Powers said he never meant for the plan to extend to brokers hired by renters. Those brokers would be able to continue to charge whatever commission they choose. In cases where the renter hires his or her own agent and the apartment has a listing agent, the commission is usually split between the two brokers.
“The bill was intended to ease the burden on the renter by not requiring them to pay a full 15% fee when they have not employed a service,” Powers told Gothamist.
“There’s no capping of fees,” he added. “The landlord should be helping to pay their representatives.”
Another bill seeks to limit security deposits to one month’s rent, which is currently the rule for rent-stabilized units. The legislation would also allow renters to pay their security deposits in installments of six months for longer leases and one month for leases shorter than six months.
The public hearing is scheduled for June 11th at City Hall.
A former Queens renter said last summer he found on his own what seemed like a perfect two-bedroom in Kew Gardens Hills. The monthly rent was $2,500. But there was a catch: upon asking the listing broker, who worked at Realty Depot, a local brokerage in Queens, he learned that the commission was 15% of the annual rent, or $4,500.
“He literally didn’t do anything to deserve that 15%,” said Jonathan, a 25-year-old employed in finance who asked that his last name not be used. “It just doesn’t justify the price.”
Including the security deposit along with first month's rent, he estimated that his upfront costs of renting the unit would be $9,500.
He said he was told the fees and the rent were not negotiable. He and his wife, who were specifically looking for neighborhoods with synagogues within walking distance, wound up moving to Valley Stream, Long Island.
“This event was so painful for me,” he said.
Gregory-Avner Yadgaroff, the principal of Depot Realty, defended the rate of commission, arguing that 15% was common in New York City, especially at a time when the economy is strong and there is high demand for apartments.
He said that listings brokers in fact work hard to secure so-called “exclusives” by building relationships with landlords. He added that their jobs are underappreciated.
Should the bills pass, he said, “People are going to start leaving this business.”
Like other brokers, he argued that commissions are negotiable.
The real estate industry is expected to vigorously oppose the bills, which to date have generated a significant amount of support. A total of 21 council members have signed on in support, as well as Public Advocate Jumaane Williams.
Douglas Wagner, a brokerage services manager at BOND New York Real Estate, told Gothamist the bills are simply misguided and would cause landlords to cover the cost of commissions by increasing rents. "I just don’t think [Powers] understands well enough what goes on behind the scenes," he said, adding, "I don’t believe the government should cap people in a free market economy in terms of their compensation."
The Real Estate Board of New York, the lobbying group for the real estate industry, recently sent out an email to its members urging them to attend the public hearing.
John Banks, the president of the Real Estate Board of New York, issued the following statement to Gothamist:
“We remain concerned with the updated bill language because it would continue to punish hardworking middle-class New Yorkers and have the unintended consequence of raising monthly rents in New York City. We are urging our members to express their concerns to the Council and prepare to attend the upcoming public hearing.”