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| 4 minute read

Is it FARE? An Update on Broker Fees in NYC

On November 13, 2024, the New York City Council passed the Fairness in Apartment Rental Expenses (FARE) Act, a landmark piece of legislation that significantly alters the rental landscape in one of the world's most competitive housing markets. The law, approved with a 42-8 vote, prohibits real estate agents representing landlords from charging prospective tenants a broker's fee. While the act has received substantial support from the Council, Mayor Eric Adams has previously voiced concerns about its potential impact. Nonetheless, the bill is moving forward with a veto-proof majority, set to be implemented in approximately six months unless challenged in court.

What are the key provisions of FARE?

The FARE Act specifically targets broker fees imposed on tenants, mandating that landlords must cover the costs of their agents. This applies to any agent representing a landlord, including those who advertise properties online, regardless of formal agreements. However, the legislation does not outright ban broker fees; tenants can still incur fees if they choose to engage their own brokers, known as tenant agents, or if dual agents represent both parties in a transaction.

Will this change the property search for tenants?

The Act alters how tenants search for rentals, though the initial process remains largely the same. Tenants can browse online platforms and contact landlords directly without incurring broker fees. However, they must be aware of the agent's role in each transaction, as this will determine whether a broker fee applies. Confusion may arise when agents switch roles during the search process, potentially leading to unexpected fees for tenants.

What does FARE mean for landlords?

Under the new law, landlords retain the option to lease properties independently or with broker assistance. If they choose to engage brokers, they are now responsible for covering the associated fees. Landlords may also adjust their rental pricing to offset these costs, which historical data suggests could lead to increased monthly rents.

What are the pros to FARE?

The FARE Act offers several advantages for tenants, most notably reducing upfront costs at lease signing. Currently, renters often face expenses equivalent to three to four months’ rent, which can deter potential residents from moving to or within New York City. By shifting broker fee responsibilities to landlords, the act could lower overall transaction costs, making rental housing more accessible. The legislation may also encourage alternative brokerage models, such as flat-fee services, promoting a more competitive market.

For mobility programs, not having to reimburse or pay that broker fee in the future, if it is a current policy benefit that is offered, will save the program significant amounts, especially for those programs that cover the tax burden by providing gross up on that “taxable” benefit to the employee. 

Are there any cons to the FARE Act?

Despite its benefits for renters, the FARE Act may also lead to unintended consequences, such as increased monthly rents. Historical trends indicate that "no-fee" apartments tend to command higher rents compared to those with broker fees, suggesting that landlords might raise prices to recoup the costs of broker fees. 

Highline Residential shared that historical data on New York City rentals shows that "No Fee" apartments command higher rents than those requiring a broker fee, with differences ranging from 3% to 12% across boroughs. An analysis of over 145,000 listings that hit the market in Manhattan, Brooklyn, Queens, and the Bronx over the past six months showed that no-fee apartments are consistently priced higher. It stands to reason that as landlords adjust to covering broker fees, they will increase rents to recoup these costs. History shows the market will easily allow them to do so. See their chart:

Smaller landlords may be disproportionately affected, as they often lack the financial flexibility of larger corporate landlords and may struggle to absorb the added costs without raising rents.

At the same time, the person that introduced this Act, Councilmember Chi Ossé feels that it would be illegal for nearly half of the city's rent-stabilized apartments to raise rents, and he believes the market forces set the rent, not landlords.

"Forty-seven percent of homes for tenants in New York City are rent-stabilized, so it would be illegal for landlords to bake the fee into rent in that case. In addition to that, rents are set by market forces, not by what landlords could charge. If your landlord could increase your rent tomorrow, they would have done so yesterday. They're not holding back, who are we kidding," Ossé said.  

Additionally, the act could decrease market transparency. Some landlords might opt to forgo online listings altogether, sharing properties privately with brokers, which could reduce the visibility of available rentals and complicate the search process for tenants.

What do mobility programs do now?

As the FARE Act is implemented, its effects on rental pricing, landlord strategies, relocating employees, mobility programs and market accessibility will become clearer. Staying informed on these evolving regulations will be crucial for both tenants, landlords, and mobility teams that are navigating the changing landscape of New York City's rental market. For those managing a mobility program with activity in NYC, we are not suggesting making any policy or program adjustments at this point but staying tuned to see whether and how this gets implemented. For the time being, your program will continue to work the way it has. As an RMC, we will continue to help support your mobile NYC bound employees with high quality destination service partners when authorized. We will be monitoring the next steps taken and keeping you up to date.  

 

NEW YORK -- Broker fees in New York City will be covered by landlords, instead of tenants, under a new law passed Wednesday by the City Council.  The Fairness in Apartment Rental Expenses, or F.A.R.E., Act received 42 of 51 votes, a veto-proof majority.  Under the bill, whoever hires the broker will have to pay them. In most cases, that is the landlord.  There is a 30-day window for the mayor to sign the F.A.R.E. Act into law. If he doesn't, it still becomes the law at that point. It will take effect 180 days after that.

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global mobility, new york city, relocation, fare act, new york city council, legislation, broker fees, policy, benefits, taxable expenses, gross up, possible savings, property search, relocating employee experience, landlords