New York’s decades-old broker fee arrangement has officially ended, with a new law taking effect this week that stops apartment tenants from paying fees to brokers they didn't hire.
The Fairness in Apartment Rental Expenses Act, or FARE Act, began Wednesday and shifts the broker fee burden to the party, typically a landlord, hiring an agent. It bars brokers who represent landlords or publish listings with the landlord’s permission from charging tenants broker fees. Landlords or their agents must disclose other fees that the tenant must pay in their listings and rental agreements, according to the city.
The New York Apartment Association, representing owners and operators at the city’s rent-stabilized apartments, said Wednesday the measure will further stress many of the city’s rent-stabilized buildings: “This law will shake up the rental market in ways we can’t yet imagine,” NYAA CEO Kenny Burgos said in an email to CoStar News. “One thing’s certain: finding housing is about to become even harder as the market adapts to this new distortion.”
The new law changes rentals in a market where high broker fees had become synonymous with apartment living. Boston is another city said to be making moves to do away with the practice.
It also comes as New York, the largest rental market in the United States, contends with what a previous city survey showed as a record low vacancy rate of 1.4% that has sent market rents to record highs in a market where more than two-thirds of the population rents apartments.
About half of listings have involved broker fees ranging from one month’s rent to 15% of annual rent and averaging $13,000 in the first nine months of 2024, according to a study by a committee at the New York City Council. The body passed the bill in a veto-proof majority in November that set the stage for the law going live.
The market asking rent in the New York metropolitan area has reached a record high of $3,335 per month, according to CoStar data. The median rent in Manhattan in April rose 5.9% from a year earlier to $4,500, an all-time high for the second time in three months, according to the most recent Douglas Elliman monthly rental market report compiled by appraisal firm Miller Samuel.
Rental price per square foot in Brooklyn in April also rose to the second-highest on record, while in Northwest Queens, an area including Long Island City, all price trends also rose “sharply,” according to the Douglas Elliman report.
Injunction denied
The law went live after a judge this week denied a preliminary injunction request from the Real Estate Board of New York, a trade group representing some 14,000 real estate professionals in New York, as well as other real estate groups and brokerages.
“We’re disappointed that the preliminary injunction in our federal lawsuit has been denied,” Real Estate Board President James Whelan said Wednesday in an emailed statement to CoStar News, adding that the group will “continue to litigate this case as well as explore [its] avenues for appeal. New Yorkers will soon realize the negative impacts of the FARE Act when listings become scarce, and rents rise.”
Burgos, the NYAA executive, predicted many buildings will stop using brokers for rentals and not publicly list apartments. “Tens of thousands of rent-stabilized buildings are in financial distress and are unable to shoulder the cost of brokers’ fees,” he said.
“Either way, the law is an added cost on rent-stabilized buildings, many of which are already bankrupt or are quickly plummeting towards financial insolvency,” Burgos said.
While some landlords are said to have already hiked their rental prices ahead of, or in response to, the FARE Act, it remains to be seen whether New York’s already record-high rents will head sharply higher.
“Considering that average [market rate] rent in New York City is already the most expensive in the U.S. at more than $3,500 per month and rising at a rate that is double the U.S. average, it seems unlikely that rents will grow by 15% overnight,” said Victor Rodriguez, CoStar Group’s senior director of market analytics. “Many owners have strict income requirements, where renters must earn at least 40 times the monthly rent to qualify. Increasing the rent will further limit the qualified renter pool and leave units vacant for longer.”