I have never seen a law that was so unequivocally disputed by every person in the Real Estate industry. But, just for fun, let us look at it from another angle. Could this new ruling on the law be good for Real Estate Brokers and bad for the public?
What will this ruling do to the agents? It will cause brokers not to charge their clients for fees if there are advertising a property. let us just note for a fact that about 90% of leasing is done by agents or brokers who are also advertising that property. This is since every brokerage is advertising almost every property for rent on the market.
So this means that brokers charging renters fees will end up being a thing of the past. So what will landlords do? Rent the units themselves? Well if they could do that they would already, this law would not and will not push them to do it. Brokers will be needed, the paperwork, the salesmanship the drawing and identifying the client. Landlords need brokers.
Rental fees are small in the big picture of things. Think that if the city has about a 28% turnover each year from tenants. Then if the broker's fees from a landlord are one month and one month fee is 8.3% of the yearly rent roll. Then you are thinking the overall cost will be 2.324% of a landlord's revenue.
So what I think is that the landlords are just going to start paying this fee, the 8.3% on all rental deals going forward.
Next, you have to look at some other points that this will make. Now the brokers will solely be working for the landlord. This means better ads, more photos more information. That’s great news for a sector of our market with limited transparency and lots of false information.
But for the tenant prospect looking for a home, they won't have the support of the broker. The days of a two-party broker system are gone. Now we will only see listing side agents, that’s where all the money is coming from. Tenants are on their own, they aren't paying the fee so they are out in the cold. Renting an apartment in NYC is scary and brokers are your only advocate. The process is not valuable enough to have legal support from a lawyer and there isn’t much the AG or DOS do to in the way us supporting you.
For the agent, this will be great though. No more getting pushed down on your fee, it will be negotiated ahead of time and rather standardized with the landlord. You will be paid and you won't have to worry about bad checks or games being played.
But what about that 2.324% will the landlords eat it? Of course not, the landlord never loses. Rents in NYC will just go up 3% maybe 4%. Tenants will pay it easily, they are saving a whole bunch at lease signing, so an extra 4% over time is easy. That’s amazing for the landlord, a higher rent roll is great when rates are low (like they are now) and you can Refi your debt. That’s a major payday for every landlord.
But wait, many fees were 15% when you rent an apartment, no we are talking about 8.3%. Well, that was when there was a two-party broker system. But with the tenant side agents saying bye-bye that split is dead. So the listing agent getting paid 8.3% rathe then 7.5% from what could be a less qualified source.
But this means that there will be less work for brokers since only one will be used for a deal? Yes, I would think that about 5,000 agents are out of a job. These will be the newer agents who have less chance of scoring a big landlord account. So the older scruffy tough ones will get more of the business working for the landlords. Oh and this business will grow. Right now the rental turnover in NYC is 28% annually but that will go up. In talking to many tenants one of the biggest things keeping them in their apartment is the cost of finding a new rental. The biggest cost in that is the broker's fees. But since they are not paying rental fees they will move more often. This, in turn, will make landlords pay more fees, which will cause them to raise rents. Those landlords will raise rents on their whole portfolio, not just on the tenant who is moving so that the moving tenants will not directly feel the effect on their move. Their rent is going up if they move or not.
So as a broker: more deals, higher fees, less work (no more running around with tenants), a steady fee payer and probably less competition.
For the tenant: Higher rents, less support & protection, but no fees when you sign a lease.
For the landlord: more cost at lease signing, higher rent roll, and more $ overall.
Yes, I’ll vote to pass this law.