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Real Estate Brokers Are Still Seeking Hefty Fees From NYC Tenants, Despite State Ban
By
Jake Offenhartz
and
Elizabeth Kim
Published Feb 7, 2020
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By
Jake Offenhartz
and
Elizabeth Kim
Published Feb 7, 2020
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News of the state's sweeping ban on broker fees continues to send shockwaves through New York City's real estate market, earning stunned praise from renters and cries of doom from many of the industry's longtime gatekeepers. But despite the sudden paradigm shift, some city brokers are doing business as if nothing has changed.
Multiple New Yorkers told Gothamist that they've been misled by real estate brokers in the days since the Department of State issued its clarification of last summer's rent reform package, which effectively prohibits agents from charging commissions after January 31st (whether fees paid to brokers after the bill was signed into law in June can be clawed back remains an open question). Some tenants say that brokers have outright refused to acknowledge the changes. Others allege they've been urged to sign waivers falsely indicating that they were the ones who hired the brokers to represent them.
Jennifer, a 41-year-old librarian living in Bed-Stuy, said she went to see an apartment in Ridgewood on Thursday night with a broker fee listed as $1,550. She came prepared with a copy of the Department of State's directive, planning to make the case that the landlord should be responsible for that payment.
"The broker kept telling me this isn’t the law, just a guideline," said Jennifer, who asked that we not use her last name for fear of ending up on the tenant black list. "It felt like she was trying to confuse me so I would pay the fee, essentially."
The broker has been handling the building for at least two years, and initially acknowledged that she was screening the apartment for the property owner, according to Jennifer. "But when I asked if she was hired by the landlord, she'd say, 'We’re now representing tenants.' I was like, 'Okay you’re not.'"
Under the package of rent reforms passed by the state legislature in 2019, brokers can legally charge a commission to apartment hunters if they have been hired to represent them. But the state has now clarified that brokers acting as a "landlord’s agent" — the more common arrangement in NYC — cannot charge tenants for their services. Some landlord-hired brokers appear to be exploiting confusion over this difference.
Christina, a 33-year-old project manager, had planned to sign a lease on Saturday for a studio apartment in Crown Heights. But after learning of the state's action this week, she informed the broker that his fee should now be covered by the landlord.
"That law applies to landlords' agents," he responded, according to emails shared with Gothamist. "I’m a tenants' agent." Application documents for the apartment show that the agent had listed himself as "a licensed real estate broker acting in the interest of the Landlord and Landord's agent."
Ultimately, her offer to split the cost of the fee with the landlord was rebuffed. She's now unsure whether she'll still sign the lease this weekend.
A text message shared with Gothamist by a different tenant shows one broker explaining: "agents/brokers will now have prospective tenants sign forms before showing apartments. Brokers are entitled to a fee from the tenant under hire (the form confirms that you are hiring us). We won't be showing any of our apartments unless the form is signed." When the tenant pointed out that they'd found the apartment themselves online, the appointment was cancelled.
The confusion underscores the varying roles that brokers have long played in New York City's rental ecosystem — often working as a facilitator for landlords, while collecting their checks directly from tenants. Experts suspect that under the new system, many landlords may forego the trouble of hiring brokers altogether, and instead list their apartments online directly.
"With technology and the ubiquity of platforms such as Zillow and StreetEasy, the frictions to search for a rental apartment have greatly reduced in the past decade," said Stijn Van Nieuwerburgh, a real estate and finance professor Columbia University’s Graduate School of Business. "This may be an efficient reallocation of labor for the New York economy, but of course not a fun one for the real estate sector."
On Friday, at least two large brokerages were instructing agents to follow the current DOS guidance. A spokesperson for Compass said that agents are not collecting fees from tenants unless there is “documentation that explicitly outlines the agent was hired by a tenant.” The company signaled that it was planning to fight the state’s interpretation.
Similarly, Warburg Realty also said they were telling their agents to comply. Corcoran, a top NYC realtor that employs roughly 1,320 agents, has reportedly told its employees to “conduct your business in accordance with the law and all applicable regulations, not advisory opinions promulgated in haste.” The firm did not respond to a request to confirm its response and what exactly it was telling agents to do regarding collecting broker fees. Douglas Elliman, which employs nearly 2,000 brokers, the most of any brokerage in the city, also did not respond to a request for comment.
"The entry-level broker, the one who earns their living and learns the trade in rentals, just had their career end before it started," said Jason Haber, a broker with Warburg Realty. "Young entrepreneurs with rental firms are going to go out of business."
The Department of State, which is charged with licensing brokers, noted in their guidance that those who violate the new rules will be "subject to discipline." The text does not elaborate on what those penalties would entail, and inquiries to the Department of State and the Governor's Office were not returned.
According to Ellen Davidson, an attorney with the Legal Aid Society, ensuring compliance with the new rules will hinge on whether the state takes its oversight power seriously. "Brokers only have the power to undermine this if there’s no enforcement," she noted.
Andrea Shapiro, a program director with Met Housing Council, said the organization had already heard several stories from tenants about brokers looking to "flout the law." She encouraged anyone who feels they've been wrongly charged a fee to report it through the state's licensing division.
"It's like bribery," she added. "If we all refused to pay bribes, people wouldn't ask for them."
Tagged
brokers fees
broker fees
rent reform
real estate agent
Jake Offenhartz
Jake Offenhartz is a former Gothamist reporter.
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Elizabeth Kim
Elizabeth Kim is a reporter on the People and Power desk who covers mayoral power. She previously covered the pandemic, housing, redevelopment and public spaces. A native of Queens, she speaks fluent Mandarin. Got a tip? Email [email protected]
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Gothamist is funded by sponsors and member donations
Gothamist is funded by sponsors and member donations
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