Memorandum in Opposition to the New York State Assembly: Limiting Broker Fee Commissions

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MEMORANDUM IN OPPOSITION

A4781 (Mamdani)/S2783 (Brisport)

AN ACT to amend the real property law, in relation to
prohibiting landlords, lessors, sub-lessors and grantors from demanding brokers' fees from a tenant

The Real Estate Board of New York (REBNY) opposes this legislation, which seeks to eliminate the ability for residential real estate agents to collect a commission in those instances when the agent represents the property owner. While couched in terms of protecting renters, this will only increase rents and make it more difficult to work with the licensed professionals who are best able to help renters navigate a complicated market. This legislation is of grave concern to the entire residential real estate community and should be of concern to renters as well.

Pursuing a unit where a property owner has engaged the services of a real estate agent is ultimately a decision that the renter makes. There is zero obligation for any renter in New York City to choose a unit with an agent’s fee attached. As an industry and as a State, we need to ensure that all renters have options when they look to find their new home. But it is important to note that a “no-fee” listing simply has the cost included in the rent.

It is currently a choice as to whether the property owner chooses to incorporate these necessary broker services into the rent (leading to a higher monthly rent for the length of the lease) or chooses to have it structured as a one-time cost. And for a renter, it is ultimately a choice of whether they prefer to look for a unit with these fees already incorporated into their monthly rent or choose to spend this one-time cost when they have found their new home.

Real estate agents provide an invaluable service to prospective tenants and property owners, ensuring that vacant units are filled as soon as possible. An agent’s full suite of services and assistance includes paying for marketing, facilitating showings, conducting market research to help the owner price apartments, advising on improvements, organizing application materials, and guiding tenants through a complicated and often stressful process. Rather than earn a salary, real estate agents receive commission fees which are often their only compensation for innumerable hours and effort, as well as direct costs associated with the listing process, not to mention their considerable expertise. The high cost of advertising listings and constant travel to showings between boroughs comes directly out of the agent's own pocket.

Eliminating these types of broker commissioners needlessly hurts thousands of New York residents, often renters themselves, who work hard to make ends meet in New York City. Despite the perception on popular but glamorized TV shows, data shows that the starting wages for New York City real estate agents are about $53,000 per year. These starting wages are less than 60% of New York City’s area median income and would qualify many agents for affordable housing. That agent wages grow to about $100,000 annually on average with experience demonstrates that the job of a real estate agent is the type of opportunity in New York City that offers a pathway to the middle class, including for those who may not have a college degree.

We fully appreciate and support the sponsors' intent of making rentals more affordable for New Yorkers and protecting tenants in these transactions. Unfortunately, this bill will have the opposite outcome to its intentions and will ultimately hurt both renters and the livelihoods of hardworking New Yorkers.

As an initial matter, the fees that agents collect are negotiable, and the Department of State has never established any fixed prices for these services. In fact, in the Department’s Real Estate Education Campaign, they specifically note that “commission fees are negotiable. You have the right to negotiate the amount of the commission to be paid to a broker or salesperson. There is no such thing as a mandatory commission rate.”

Further, whatever fee the agent does ultimately collect in these transactions is a one-time cost for the renter. Eliminating this type of transaction would result in unintended consequences, including property owners raising rents to cover costs or no longer hiring experts to handle these transactions that require quality services. When this fee is incorporated into rent rather than paid as a one-time expense they result in higher base rents for tenants, which can compound over time given that many tenants stay in the same unit for many years. In fact, this is just what happened in 2019 when the Department of State erroneously eliminated these fees and properties that were impacted saw a sudden increase in rental prices. Should this bill move forward, prospective renters will only face higher monthly housing costs.

This dynamic poses a particular challenge for rent-regulated units given that rent increases in these units are limited to what is allowed by the Rent Guidelines Board. As such, these expenses would essentially become entirely borne by the owner. With owner’s costs already rising and allowable rent increases not keeping up with those costs, this will result in an additional burden that will discourage much needed investment in the city’s one-million rent-regulated housing units.

A practical implication of this legislation is that it may result in more property owners doing work that was previously done by real estate agents. This would potentially weaken the ability to uphold fair housing standards as State law requires real estate licensees to take fair housing and implicit bias training to ensure that prospective tenants are not subjected to discrimination or harassment. This includes mandatory education in implicit bias, cultural competency, fair housing, and ethical business practices. Property owners do not have the same training requirements as agents, nor do they have the same experience. As such, this legislation could unintentionally weaken the legislature’s efforts to strengthen the State’s fair housing regime.

The Real Estate Board of New York believes this legislation will needlessly raise rents and hurt the ability for residential real estate agents to be fairly compensated for their tireless efforts. We look forward to working with the bill sponsors toward any efforts to promote transparency and understanding for renters in a responsible way.