Rent In New York City Spikes As Controversial Broker Fee Ban Faces Legal Challenges

While a lawsuit halted the implementation of New York Department of State’s recent ban on broker fees, the controversial new rule, which dawned on New York City suddenly late last week, has already impacted rent prices.  

In a study released this Thursday, apartment listing platform PropertyClub found out that citywide rent on affected properties spiked by 6.1% on average in the week after the state precluded brokers from charging tenants for their services. Under the old system, brokers hired by landlords could levy a commission as high as 15% of annual rent. The ban on broker fees postulates that landlords pick up the expense instead of renters.  

To make up for the new cost, landlords promptly increased rent, according to PropertyClub’s analysis of 7,000 listings on its own platform as well as on StreetEasy, Corcoran, Compass and Douglas Elliman.  

At 6.4%, Brooklyn saw the largest hike. In Manhattan average rent went up 5.9%. Yet, on the backdrop of New York City’s usual rent growth, those figures are not striking, says PropertyClub CEO Andrew Weinberger. 

“The guidelines just dropped on the industry without any notice,” he says. “This definitely helped keep the [rent] increase low. If the Department of State had said, ‘Starting June 1, you can no longer have tenants pay the landlord’s broker,’ they might have had more time to adapt and plan for it.” 

The Highs and Lows of Rent Spikes and Yearly Gains 

Some of Manhattan’s prime addresses saw jumps between 6% and 10%, but only two neighborhoods in the city registered a rise above 10%. These are Harlem in Manhattan (10.9%) and East New York in Brooklyn (10.4%). In both locales, the rent increases translate to about $3,500 more annually, which is higher than one month’s worth of rent.  

“Neighborhoods where you saw a very high jump, they tend to be neighborhoods that are up and coming, gentrifying,” says Weinberger. “That’s where the average rent is lower. I don’t want to say that that will necessarily come down too much, because they tend to not have a lot of inventory as well.” 

In monetary values, the largest rent increase—nearly $5,000—is in Tribeca, closely followed by the Lower East Side. In the meantime, rents in Queens grew the least in cash terms.  

Although rents swelled, tenants are still in a position to benefit from the ban, according to PropertyClub’s calculation. That is because broker fees exceed the annual rent premiums. All of the 39 neighborhoods the company studied posted savings in the first year of residency.  

Renters in Battery Park City, where leases amount to nearly $67,000 a year, would save the most. Despite a 3.9% increase in rent, they would save some $7,500 annually by not having to pay a 15% broker fee or a little over $10,000 on average.  

One neighborhood in Manhattan (Harlem) and three in Brooklyn (East New York, Canarsie, Midwood) and one in Queens (Astoria) registered one-year savings of less than $2,000. In fact, in Harlem and East New York City, tenants see the highest percentage increase in rent and the smallest savings.  

New Long-Term Deals 

Because the ban—if it is upheld in court—would shift the burden of broker fees to landlords, some of them may begin to pursue long-term leases in order to avoid the added expense. Weinberger says a few landlords have already started to offer deals in order to entice tenants to stay longer.  

“That’s very interesting because it really shows that the dynamic is changing,” says Weinberger. “It would essentially put a lot more power in the hands of tenants.” 

But he advises renters looking for long-term leases to work with their own broker in order to secure the best bargains. If lease seekers do hire their own broker to represent them, they would have to take on that broker’s fees. Yet, even if the latter is thousands of dollars, the expense might be justifiable for a rental agreement that lasts several years and, thus, avoids annual rent hikes and moving costs.  

“If you know you’re going to sign two- or three-year lease and you don’t plan on moving, it’s worth it,” Weinberger says.  

For annual leases, though, he suggests tenants look for no-fee dwellings. Even if such properties tend to come with higher rents overall, Weinberger says tenants should still benefit from the lack of a broker fee.  

This post first appeared on Forbes.com. To see the original, click here.