Broker fee reform draws ire from real estate industry, tepid city support

Lawmakers say a polarizing proposal to limit brokers’ fees charged to renters will cut the “astronomical” costs of moving into a new apartment, but industry insiders argue the cap would torpedo their livelihoods.

Hundreds crammed into a Thursday City Council hearing on a package of bills aimed at reforming rental transactions, and hundreds more lined the gates of City Hall, waving signs scrawled with “Don’t cap my income” and “Agents are tenants too.” The impassioned crowd cheered and jeered throughout hours of heated testimony as renters and brokers weighed in on the legislation.

Manhattan councilmember Keith Powers, who introduced the contested bill, repeatedly stressed the law’s intent to restrict upfront costs that can be a barrier for low-income renters to find housing—not to actively reduce brokers’ commissions.

“The bill has had one intention: To make it more affordable to rent an apartment in New York City by asking one thing—for the landlords to pay for the people that they hire,” says Powers. “At the end of day, I believe that you’re working hard to help that landlord and that service, to me, should be also paid for, at least contributed to, by the person that has brought the unit to the transaction.”

The bill, which has the backing of 22 Council members and Public Advocate Jumaane Williams, would make it unlawful for an agent hired by a landlord to collect brokers’ fees exceeding one month’s rent—putting the kibosh on fees of 12 to 15 percent of the annual rent that has long been de rigueur. The language is a shift from an earlier version of the bill, which would have capped all brokers’ fees at one month’s rent.

A separate measure would restrict security deposits to one month’s rent, which is already the norm for rent-stabilized New York apartments. Both stipulations work to streamline the process and ensure renters are not taken for a ride, said councilmember Carlina Rivera.

“With rental costs at all time highs, it is long past time that we tear down these unnecessary financial barriers for renters,” says Rivera, who previously worked as a tenant organizer with Good Old Lower East Side. “I want to make clear that the goal of these bills is to provide upfront affordability, predictability, and transparency. If a property owner hires a broker to market an apartment, why should tenants be expected to shoulder the costs?”

But many rental brokers note that they work as independent contractors and pay taxes, health insurance, and business expenses out of their fees. In 2018, the average annual wages of a real estate broker and sales agent in the U.S. was $63,140 with a median hourly wage of $22.92, according to U.S. Department of Labor data. For those who are staffed at brokerages, layoffs would be a likelihood, those in the industry argue.

David Schlam, president and founder of City Connections Realty, which has about 100 brokers, says some 95 percent of his rental transactions are on behalf of landlords and that’d he’d have little choice but to axe staff; he also warned of a real estate ripple effect.

“If this bill were to pass it would be quite devastating. Truthfully, it would drastically lower the income of my agents—as well as all the other agents out there. I personally would have to lay off some staff,” says Schlam, noting that he would likely have to chop other services. “It affects much more than just the real estate agents. It really is a domino effect without a doubt.”

Others charged that even if landlords did pay more out of pocket to their sales teams, renters would likely face hikes as a consequence, compounding a one-time cost into a recurring burden.

At Thursday’s hearing, tenants described devoting hundreds of hours to finding apartments for their families only to be stymied by excessive upfront costs. In one example on the extreme end of the spectrum, a tenant who was renting a Manhattan apartment for $2,650/month who decided to go through with the lease said they paid $12,570 in fees before moving in—including a $4,770 brokers’ fee, a security deposit equal to one month’s rent, and a litany of other processing and application fees.

“These upfront costs, whether it is security deposits, brokers’ fees, or credit checks, create a significant financial burden especially for young and low-income renters searching for opportunities,” says Genna Goldsobel, a tenant organizer with affordable housing advocacy group the Fifth Avenue Committee. “These practices are discriminatory and they must end.”

Another renter detailed a scam through a Craigslist advertisement, which led them to being tricked into paying fraudulent fees; they also found little guidance when they turned to city agencies and elected officials.

That behavior, however, is not the norm, brokers stressed. One agent with luxury real estate firm Douglas Elliman acknowledged the financial binds some renters find themselves in but emphasized that brokers work long hours to shepherd clients through the complicated renting process and shouldn’t have to face caps on fees.

“I recognize in every industry there are bad actors, but by and large real estate agents and brokers, we serve as guardians of the industry because we facilitate the ability of landlords to navigate through what can be a very treacherous process,” says Sheilla Levin, who said she subsisted on a steady diet of sardines and peanut butter and jelly sandwiches when she started out in the highly competitive industry. “Seeking to standardize an industry where there are so many variables that come into play is just not practical.”

The de Blasio administration backed the measure to limit security deposits to one month, but stopped short at endorsing the measure to cap brokers’ fees. Sarah Mallory, the chief of staff of government affairs at the Department of Housing and Preservation, says the administration “supports the intent” of the bill “but want to take more time to review the specific language in these bills to consider how they interact with the current state law and recently enacted amendments.”

It is unclear when the bills will return to the City Council’s Housing and Buildings Committee for a vote. But even less certain is if real estate has the clout to block the bill from winding its way through the Council after tough rent regulations successfully made it through the state legislature earlier this month despite fierce lobbying.