New York brokerage fees remain unchanged. Why do they even exist?

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In addition to giving out rent and security deposits in the very expensive rental market in New York, many potential tenants looking for an apartment have to deal with another major expense: broker fees.

This large fee, a one-time payment that usually amounts to 10 to 15 percent of the annual rental amount, is paid by the tenant to the listed broker, regardless of whether the broker helped the tenant find the apartment and sign the lease. For example, for an apartment for $ 2,500 a month, the fees can go up to $ 4,500.

Before tenants receive the keys to their new apartment, they may have to pay this fee in addition to their first month’s rent and a security deposit, which is usually equal to one month’s rent. All this amounts to many thousands of dollars.

New York State This Week clarified in the new manual for the real estate industry that brokerage fees were legal, which ensured the remnants of pre-internet listings in the digital age of virtual tours.

Here’s what that means for tenants.

Yes but only for a very short period at the beginning of 2020.

Shortly before the pandemic hit the city, the New York State Department, which interprets the laws and issues recommendations based on those interpretations, said that, in line with broad rent protection laws passed by the State Legislature in 2019, brokerage collection fees were banned. The package of laws is intended to strengthen the rights of tenants.

The announcement stunned brokers, tenants, and even some lawmakers, who left out brokerage fee caps when laws passed in 2019 that would impose limits on other types of rental fees.

Technically, brokerage fees were banned for several weeks in February 2020, from the time the state said they could not be collected until when the state judge suspended the decision after the state’s largest real estate lobbying group, the New York City Real Estate Board, filed a claim… The group ultimately won the lawsuit, and based on that, the state updated its recommendations on Tuesday.

Before the advent of the Internet and smartphones, homeowners and brokers were the gatekeepers to available apartments and had to rush to list apartments in a variety of publications, answer calls, organize tours, and process all the necessary paperwork. This was a serious investment of time and effort, so brokers received commission in the form of a one-time fee.

But this system seems archaic today, when any potential tenant can find an apartment on the Internet, in many cases tour it virtually from their phone and never meet with a broker. During the pandemic, this seemed even more irrelevant, as many landlords and brokers encouraged tenants to personally inspect apartments for social distancing reasons.

However, potential tenants who find an apartment on their own may have to pay the same brokerage fee as those who approached a broker from the start.

Real estate groups defend the board by claiming that that brokers offer tenants a significant resource, and arguing that there is no commissionthey would be without income.

Critics say the fee creates another barrier to entry into New York and makes it especially difficult for young and low-income people to move to the city, where the average asking price is $ 2,800 a month for a one-bedroom Manhattan apartment. According to an ad on the StreetEasy website.

Although this average price fell by almost $ 550 during the pandemic, apartment prices in New York remain among the highest in the country.

Land plots for rent on a market basis are divided into two categories: apartments with payment or without commission. In fact, the commission is charged in both cases, but the difference is who pays it.

In a commission-free apartment, the landlord pays a commission to a broker who helps with the placement. This cost can be borne by the property owner, or it can be transferred to the tenant in the form of a higher monthly rent.

During the pandemic, a glut of affordable apartments has led many landlords to switch to free listing ads to attract tenants.

Potential tenants almost everywhere work directly with property owners who list their apartments on Craigslist or post “For Rent” signs in their backyards. But in New York, brokers are still in the middle.

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