NYC Broker Fees Law- What Tenants Needs to Know?

By: Abdullah Haroon July 4, 2020

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If you have ever sold a property you must have known how effective the services of real estate agents turned out for you. They do it all on your behalf and often go to extra length to serve your best interests.

They are the experts of the market and are equipped with the appropriate knowledge about the state laws and lease terms which makes selling or buying property a smooth ride for the landlord or tenant.

A pro-tenant reform in the structure of the broker’s fee is recently been framed by the Department of State (DOS). According to the clarification served by the department, the law effectively banned the practice of asking prospective tenants to pay a broker’s commission. According to these developments, the broker’s fee which historically been transferred to the tenants must now be paid by landlords instead.

However, if tenants decide to hire the services of a broker, they will still have to pay a commission or fee.

Whether you’re a prospective tenant, a broker, or just curious about the implications for New York City’s highly competitive rental market, the following are the important information you need to know about NYC broker’s fee Law.

  • What is a broker’s fee? 

A broker’s fee is, essentially, a small amount of money you pay to the real estate agents for their services. Real estate agents connect landlords and potential tenants then charge those renters a certain amount of fee anywhere from 12 to 15 percent of one year’s rent. Agents give their best services and it is the chief source of bread and butter for their families.

In the recent development in the law, it effectively banned brokers working with a landlord from collecting that 12 to 15 percent fee. Instead, the order said, the landlord should be asked to pay the broker’s commission.

  • What do you understand by a broker “a landlord’s agent”?   

According to the law, a landlord’s agent means a listing agent of the landlord or an agent who acts in cooperation with a listing agent or who serves s broker’s agent to find a potential tenant.

But there is a lot of grey area in the discussion following the law. It is still a matter of confusion that how DOC will define the term here. It was seen that when the new guidance came in the market, agents insisted tenants sign a form that says they represent them: tenants. That form would give agents the legal ground to collect the fee from them.

  • What do you need to do until the final verdict comes? 

Though the laws were implemented the restraining orders from the court have effectively stopped the implementation of new guidelines. Meanwhile, if you are looking to find an apartment with the help of a real estate agent, you are supposed to pay the commission.

  • What lies in the store for tenants regarding the new rule? 

To be honest, there is uncertainty about it. The matter is still in the court and hearings have been postponed for the time being. If we look at the guidance DOS says that “a landlord’s agent” who collects a commission (that’s the broker’s fee) from a tenant “can be subject to discipline.” It is likely to come at the hands of the DOS’ Division of Licensing Services in the form of fines, suspensions, and revoking the agent’s license but so far nothing has been made clear and confusion looms in the air.

  • Am I going to pay high rent if the landlord has to pay the broker’s fee? 

Generally, this is how things work in the market. Any additional tax is generally added to the retail cost. Therefore, those apartments that aren’t rent-regulated, landlords could transfer the additional cost of paying the broker’s fee to tenants. Before this, you must be aware with the tenant rights and laws.

Though for the rent-stabilized apartments, the landlords whose apartments are rent-regulated cannot raise the rent further than the legal amount that the Rent Guidelines Board (RGB).

  • What if you paid a broker’s fee in the period when the law took effect in June but this guidance came out in January? 

As clearly mentioned in the guidance, the law is not retrospective. This exactly means that it will not affect any dealings or transfers conducted before the issuing of guidance; on the 31st of January. In case you paid the broker’s fee in between the interim, it is not subject to refund now.

One additional tip here is that if you found a broker you believe is violating other recently enacted rent reforms (such as charging more than one month’s rent for a security deposit), it’s best to confront the broker with email or printed copies of the new law. You may also register a complaint with the DOC department or can sue in the court.

  • How likely is it that lawsuit revoke the changes? 

To be honest, it’s quite possible. So far the matter is in court and it may swing either way. To clear the doubt in the first place, restraining orders on the hearing does not mean any verdict of turning down the new guidance.

In the wake of a health emergency, hearings are postponed to let both opponents give a fair chance of defense. It is expected that restraining orders are likely to stay until at least September 11.

  • What tenant should know in this discussion? 

First thing first, it is going to take several months for this matter to settle. Until then nothing can be said with utmost certainty.

For the confusion that whether to rent now or later? The best advice anyone can give you is that if you are forced by the circumstances to move right away then you shall go on and rent an apartment. For those who can take the liberty of dragging this matter for some months, they probably shall wait and let things unfold to take a wiser decision.


The wrapping words: 

It is indeed a matter of pleasure for the renters who seek rental apartments in NYC is that probably you no longer have to pay the hefty broker’s fee.