Impact of FARE Act broker fee restrictions
SUBMITTED BY Highline Residential on November 13, 2024
On November 13, 2024, the New York City Council passed landmark legislation known as the "FARE Act," signaling a major shift in the rental landscape of one of the world's most competitive housing markets. In a 42-8 vote, the Council approved a measure that prohibits real estate agents representing landlords from charging prospective tenants a broker's fee.
While the FARE Act garnered significant support from the City Council, Mayor Eric Adams has previously expressed skepticism about its impact and potential unforeseen consequences. However, with the vote reaching a veto-proof majority, the bill is poised to move forward, with implementation expected in approximately six months unless otherwise delayed by lawsuits or judicial action.
Primer on the FARE act
The FARE act introduces restrictions on how broker fees are handled in New York City's rental market, specifically targeting fees imposed on tenants. Under the new law, a landlord's agent, defined as a listing agent representing the landlord's interests in leasing out a property, can no longer charge broker fees to tenants. This means that landlords who hire an agent to lease their property must now cover the agent's fee out of pocket at the time of lease signing.
In defining a "landlords agent", the FARE act also includes agents who post rental properties on behalf of landlords on the internet, even in cases where there is no formal listing agreement. This means that brokers who are granted permission by landlords to advertise apartments on popular rental sites like StreetEasy, Renthop, and Zillow will also be restricted from charging tenants a broker fee.
However, the legislation does not "ban broker fees" or "ban tenant paid broker fees" as many articles are likely to purport. If a tenant uses their own broker (referred to as a "tenant's agent") to help them search for properties, submit lease offers, or negotiate lease terms, that broker may still collect a fee from the tenant. Additionally, a "dual agent", who represents both the landlord and tenant in a single transaction may also charge a fee to the tenant, provided this arrangement has advanced informed consent from both parties. It it also important to note that the legislation prohibits a landlord from conditioning the rental of their property on a tenant engaging an agent as a dual agent.
How tenants will search for properties moving forward
For most New York City renters, the apartment search begins online. Tenants typically browse popular rental platforms and upon finding a property of interest, reach out to the party advertising that property, either the listing agent or the landlord's management company. With the passage of the FARE act, this process remains largely unchanged in terms of browsing apartments and contacting parties for showings. However, tenants will need to be mindful of the role the agent is playing in each transaction, as this will determine whether or not they may be asked to pay a broker fee.
If a tenant contacts a landlord or property management company directly to view a property, no broker fee will apply, as no broker is involved in the transaction-just as is currently the case. Additionally, if a tenant reaches out to a broker advertising a property on a rental platform, they will also avoid a broker fee, since this broker is now classified as a landlord's agent under the new legislation, whether or not the broker has an actual listing agreement with the landlord.
However, confusion may arise when tenants work with agents in multiple capacities. For example, a tenant may meet with an agent to view a property initially as a landlord's agent. The same agent can then show the tenant other apartments that they are not advertising online and disclose to the tenant that they are showing these additional listings in the capacity of a tenant's agent. In this case, the tenant may be responsible for a broker fee, as the agent is working to serve the tenant's interests in finding alternative properties.
Furthermore, If a tenant independently hires an agent to help with their apartment search, rather than inquiring about a specific online listing, the agent serves as the tenant's agent, and a broker fee paid by the tenant may apply. This nuanced distinction in roles may require greater awareness on the part of tenants, who may not be accustomed to distinguishing between landlord's agents, tenant's agents, and dual agents.
How landlords will lease properties moving forward
Under the FARE Act, landlords retain the choice to lease their properties independently or with the assistance of a broker, as they do today. If a landlord leases a property without involving a broker, no broker fee will be charged to either party, maintaining the status quo for direct rentals. However, for landlords who choose to work with agents, the legislation introduces new guidelines on fee responsibility.
Landlords who wish to hire an agent through an exclusive listing agreement must now cover the cost of the agent's services directly. For landlords who prefer a non-exclusive, open listing arrangement, where multiple brokers may advertise the property to potential tenants, the new legislation requires that any agent promoting the property online be compensated by the landlord.
Alternatively, landlords can still work with agents in a non-exclusive capacity while prohibiting online marketing of their property. In this arrangement, agents can bring clients directly to the landlord's property and may charge their own clients a broker fee for these services. This setup offers landlords some flexibility but may limit the online marketing exposure their property receives.
As landlords adjust to covering broker fees directly, many may look to offset these costs by moderately increasing monthly rents. Historical market data (further discussed below) shows that these rent adjustments are expected to be absorbed by market demand.
Are you a landlord confused about how to proceed? Request a free step by step information sheet
Potential Impacts - A case for the 'FARE' Act
The FARE Act promises several benefits for tenants. The most direct being that it lowers the out-of-pocket costs for tenants at lease signing. Currently, renters often face initial expenses equal to three to four month's rent when broker fees are included. For example, the total out of pocket cost to lease a $3,500 apartment could reach $14,000. Such high upfront costs deplete renters' savings, discouraging individuals from moving to or relocating within New York City, and deterring new talent from joining the city's workforce.
The FARE Act shifts broker fee responsibilities to landlords, who have more leverage to negotiate these fees with brokers. Depending on the season, anywhere from 33% to 50% of landlords already cover the cost of broker fees. When brokers charge tenants, tenants are sometimes required to pay fees up to 15% of the annual rent. Landlords rarely pay more than one month's rent in fees for the same services. By mandating landlord paid broker fees, the legislation could lead to lower overall transaction costs for both parties signing a lease. This change may even encourage the rise of alternative business models, like flat-fee brokerage services.
Potential Impacts - A case against the 'FARE' Act
Despite these advantages, the FARE Act could also bring unintended consequences. The most predictable and likely effect is an increase in monthly rents. 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.
Note: Similar patterns emerge when breaking down this data by bedroom count or neighborhood. For a more detailed analysis, please reach out to data@hlresidential.com
The legislation will also acutely impact smaller landlords more than larger, corporate landlords. In NYC, landlords commonly use 3 levers to adjust the properties cost to attract tenants and boost demand. They can cover the broker fee, offer concessions like free rent months or reduced security deposits, or lower the monthly rent. Larger landlords often have the resources to provide concessions, cover broker fees, or even lease their properties without relying on a broker. Smaller landlords, however, typically reduce monthly rent to stay competitive, as they may lack the financial flexibility to handle both broker fees and other costs, such as maintenance or renovations. In effect, the legislation prevents smaller, "mom and pop" landlords from spreading out the cost of the upfront broker fee by offsetting it with a lower monthly rent for tenants.
Another potential drawback is reduced transparency in the rental market. Although difficult to predict, one possible scenario is that some landlords may avoid publishing listings online, instead privately sharing their listings with brokers who can bring in clients without the visibility of a public listing. Should this happen, it would lead to a decline in the percentage of available rentals listed on the internet, making the search process less transparent.
As the FARE Act's implementation unfolds, its full effects on rental pricing, landlord strategies, and market accessibility will become clearer. For those navigating these changes, staying informed on the evolving regulations will be essential.
Are you a landlord confused about how to proceed? Request a free step by step information sheet
While the FARE Act garnered significant support from the City Council, Mayor Eric Adams has previously expressed skepticism about its impact and potential unforeseen consequences. However, with the vote reaching a veto-proof majority, the bill is poised to move forward, with implementation expected in approximately six months unless otherwise delayed by lawsuits or judicial action.
Primer on the FARE act
The FARE act introduces restrictions on how broker fees are handled in New York City's rental market, specifically targeting fees imposed on tenants. Under the new law, a landlord's agent, defined as a listing agent representing the landlord's interests in leasing out a property, can no longer charge broker fees to tenants. This means that landlords who hire an agent to lease their property must now cover the agent's fee out of pocket at the time of lease signing.
In defining a "landlords agent", the FARE act also includes agents who post rental properties on behalf of landlords on the internet, even in cases where there is no formal listing agreement. This means that brokers who are granted permission by landlords to advertise apartments on popular rental sites like StreetEasy, Renthop, and Zillow will also be restricted from charging tenants a broker fee.
However, the legislation does not "ban broker fees" or "ban tenant paid broker fees" as many articles are likely to purport. If a tenant uses their own broker (referred to as a "tenant's agent") to help them search for properties, submit lease offers, or negotiate lease terms, that broker may still collect a fee from the tenant. Additionally, a "dual agent", who represents both the landlord and tenant in a single transaction may also charge a fee to the tenant, provided this arrangement has advanced informed consent from both parties. It it also important to note that the legislation prohibits a landlord from conditioning the rental of their property on a tenant engaging an agent as a dual agent.
How tenants will search for properties moving forward
For most New York City renters, the apartment search begins online. Tenants typically browse popular rental platforms and upon finding a property of interest, reach out to the party advertising that property, either the listing agent or the landlord's management company. With the passage of the FARE act, this process remains largely unchanged in terms of browsing apartments and contacting parties for showings. However, tenants will need to be mindful of the role the agent is playing in each transaction, as this will determine whether or not they may be asked to pay a broker fee.
If a tenant contacts a landlord or property management company directly to view a property, no broker fee will apply, as no broker is involved in the transaction-just as is currently the case. Additionally, if a tenant reaches out to a broker advertising a property on a rental platform, they will also avoid a broker fee, since this broker is now classified as a landlord's agent under the new legislation, whether or not the broker has an actual listing agreement with the landlord.
However, confusion may arise when tenants work with agents in multiple capacities. For example, a tenant may meet with an agent to view a property initially as a landlord's agent. The same agent can then show the tenant other apartments that they are not advertising online and disclose to the tenant that they are showing these additional listings in the capacity of a tenant's agent. In this case, the tenant may be responsible for a broker fee, as the agent is working to serve the tenant's interests in finding alternative properties.
Furthermore, If a tenant independently hires an agent to help with their apartment search, rather than inquiring about a specific online listing, the agent serves as the tenant's agent, and a broker fee paid by the tenant may apply. This nuanced distinction in roles may require greater awareness on the part of tenants, who may not be accustomed to distinguishing between landlord's agents, tenant's agents, and dual agents.
How landlords will lease properties moving forward
Under the FARE Act, landlords retain the choice to lease their properties independently or with the assistance of a broker, as they do today. If a landlord leases a property without involving a broker, no broker fee will be charged to either party, maintaining the status quo for direct rentals. However, for landlords who choose to work with agents, the legislation introduces new guidelines on fee responsibility.
Landlords who wish to hire an agent through an exclusive listing agreement must now cover the cost of the agent's services directly. For landlords who prefer a non-exclusive, open listing arrangement, where multiple brokers may advertise the property to potential tenants, the new legislation requires that any agent promoting the property online be compensated by the landlord.
Alternatively, landlords can still work with agents in a non-exclusive capacity while prohibiting online marketing of their property. In this arrangement, agents can bring clients directly to the landlord's property and may charge their own clients a broker fee for these services. This setup offers landlords some flexibility but may limit the online marketing exposure their property receives.
As landlords adjust to covering broker fees directly, many may look to offset these costs by moderately increasing monthly rents. Historical market data (further discussed below) shows that these rent adjustments are expected to be absorbed by market demand.
Are you a landlord confused about how to proceed? Request a free step by step information sheet
Potential Impacts - A case for the 'FARE' Act
The FARE Act promises several benefits for tenants. The most direct being that it lowers the out-of-pocket costs for tenants at lease signing. Currently, renters often face initial expenses equal to three to four month's rent when broker fees are included. For example, the total out of pocket cost to lease a $3,500 apartment could reach $14,000. Such high upfront costs deplete renters' savings, discouraging individuals from moving to or relocating within New York City, and deterring new talent from joining the city's workforce.
The FARE Act shifts broker fee responsibilities to landlords, who have more leverage to negotiate these fees with brokers. Depending on the season, anywhere from 33% to 50% of landlords already cover the cost of broker fees. When brokers charge tenants, tenants are sometimes required to pay fees up to 15% of the annual rent. Landlords rarely pay more than one month's rent in fees for the same services. By mandating landlord paid broker fees, the legislation could lead to lower overall transaction costs for both parties signing a lease. This change may even encourage the rise of alternative business models, like flat-fee brokerage services.
Potential Impacts - A case against the 'FARE' Act
Despite these advantages, the FARE Act could also bring unintended consequences. The most predictable and likely effect is an increase in monthly rents. 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.
| No Fee | Broker Fee | Difference | |
| Bronx | $3,163 | $2,814 | 12.42% |
| Brooklyn | $4,040 | $3,629 | 11.34% |
| Manhattan | $5,367 | $5,175 | 3.72% |
| Queens | $3,889 | $2,842 | 36.82% |
The legislation will also acutely impact smaller landlords more than larger, corporate landlords. In NYC, landlords commonly use 3 levers to adjust the properties cost to attract tenants and boost demand. They can cover the broker fee, offer concessions like free rent months or reduced security deposits, or lower the monthly rent. Larger landlords often have the resources to provide concessions, cover broker fees, or even lease their properties without relying on a broker. Smaller landlords, however, typically reduce monthly rent to stay competitive, as they may lack the financial flexibility to handle both broker fees and other costs, such as maintenance or renovations. In effect, the legislation prevents smaller, "mom and pop" landlords from spreading out the cost of the upfront broker fee by offsetting it with a lower monthly rent for tenants.
Another potential drawback is reduced transparency in the rental market. Although difficult to predict, one possible scenario is that some landlords may avoid publishing listings online, instead privately sharing their listings with brokers who can bring in clients without the visibility of a public listing. Should this happen, it would lead to a decline in the percentage of available rentals listed on the internet, making the search process less transparent.
As the FARE Act's implementation unfolds, its full effects on rental pricing, landlord strategies, and market accessibility will become clearer. For those navigating these changes, staying informed on the evolving regulations will be essential.
Are you a landlord confused about how to proceed? Request a free step by step information sheet