broker fee change

Here’s a link to the NYT article for context:

https://www.nytimes.com/2024/11/13/nyregion/new-york-city-broker-fee-city-council.html?unlocked_article_code=1.Z04.rju_.gk2UhOArNpAO&smid=url-share

Thoughts? I am guessing fees paid to brokers would trend lower, as LLs will balk at paying 15% for a tenant who (as far as they can tell) may only stay 1 year. I would also guess the LLs will start placing a greater premium on longer-term leases.

I didn’t quite understand this part:

>> The bill requires whoever hires a broker to pay the fee. Landlords and their agents would be required to disclose fees in listings and rental agreements.

I’m reading that to mean that the fee a LL pays to a broker needs to be disclosed to potential tenants. Transparency is good in general I suppose, but why do LLs need to disclose costs to tenants, and why this one specifically but not others?

Here’s the bill:

https://legistar.council.nyc.gov/LegislationDetail.aspx?ID=6557858&GUID=2E6273DC-FF0F-40B2-AAB5-B9B3D9BD09DB

In my reading, the fee disclosure is about fees imposed by the LL on the tenant, not fees paid to the broker by the LL.

Meanwhile

https://www.curbed.com/article/nar-settlement-effect-silver-lining-dilettante-unqualified-brokers-leave.html

Listing agreements now specify that the seller is responsible for paying the listing agent, and separately the buyer agent. So if there's no buyer agent, the seller is saving x, listing agents no longer get that extra commission on direct deals.

Agents at some of the larger firms are requiring buyers to sign buyer agreements. The most recent one I saw from a large firm, stipulated that this buyer agent works for 3%, and the buyer is responsible for making up the difference on any listings that are offering less than 3% to a buy-side agent. This became a negotiating point on one of our recent listings, where the seller was offering 2% to the buyer agent.

I've now done several deals, charging a flat fee to buyers, $5k-$7500. And I'm currently working with two others under a similar flat fee arrangement. In one case it was the difference between getting a deal done for a buyer and not, The 3% that the seller didn't have to pay out to a broker, pushed their offer in a best and final on a brownstone over the top.

Currently, in my experience most sellers in NYC are still paying 2 and 1/2 to 3% buyer commissions. However, I think that will continue to change, dependent on the market and the property.

We've essentially been negotiating commissions, offering commission rebates for the last 15 years. I've always enjoyed the optionality. You may see successful agents and teams moving away from the typical brokerage model, and teaming up with essentially online firms that offer 90% payouts and lots of online and back office support. I just don't see a world in which buyers in New York City are going to be willing to pay one and a half or 3% to a buyer agent on a multi-million dollar transaction.

I've experienced this directly, as I was looking for a property and the agent wanted me to sign a buyer agreement that stipulated I would pay them up to 3% on any listings where the seller was not paying what they considered a full commission of 3%. And also had a clause if I didn't close for any reason, I would owe them 1% of the total purchase price, this was a Keller Williams agent. Not sure if that's office wide?

Keith Burkhardt
TBHG

> requiring landlords pay fees.

> LLs will start placing a greater premium on longer-term leases.

The rent will increase a little bit more for the LL to absorb the cost of the fees. The increase will be not high enough for the LL to recover the broker fee in one year lease, but in longer term leases. Yes, the LL will value long term tenants much more.

This will definitely increase the liquidity of the rental market as the renters have more freedom to move around.

More small landlords will choose to advertise the rental apartment themselves to reduce the cost rather than just blindly ask the broker to provide the service previously

With this, LL has a better position than renter to reduce the broker fee.

Just to add a little color to the above. Previously, when you signed an exclusive agreement with a brokerage, you were agreeing to pay the entire commission to them. Then either through the MLS agreements or in our case in New York City, the universal cobrokerage agreement, the listing agent agrees to share 50% of the commission with any member buyer agent that brings a client to the deal.

Apparently REBNY doesn't believe in Capitalism

Rebny has long been full of isht. This bill aligns NY with how the rest of the world operates. And yet Rebny implausibly claims it will raise rents which are already some of the world's highest.

I for one (tenant here, part time landlord in Nowhere - where I pay the broker) am thrilled they finally got this done. The market will be better balanced, more liquid, and more transparent. That will all help to bring down rents. And yes it will suck for brokers, a group for whom I have zero sympathy.

The market will ultimately dictate rents. When the market is more liquid, rents will be lower.

I do predict that the unscrupulous landlords and brokers (of which there are many) will get in cahoots to find ways around the law. Fortunately it includes a right of action for tenants to sue.

The negotiation with my landlord before: "You should pay me $1000/mo more bc it will close you $20k to find a new place."

Now: "You should keep my rent flat bc it will cost you $20k to find a new tenant."

RE owners are in the best position to negotiate the right fee amount. The tenant has never been. This will add efficiency to the rental market and so overall the beneficiaries will be both tenants and owners, as well as companies selling information and relevant technology who will now be incentivized to innovate for the further benefit of the market.

George/ Woodside / Rinette, I agree this will create more efficiency and lower fees overall. Brokers as a class will be obvious losers.

Outside of that, I think of the dynamics I experienced in the market over the years. Although the homes I currently lease are not fungible with the no-fee rental building housing stock, there was a time when they were. And there was always a large discrepancy between what you could get renting a condo for a certain price vs a no-fee rental, even after accounting for the fee. After enough conversations, I concluded this discrepancy existed because a large class of renters refused to consider paying a fee as a matter of “principal” or some other version of (in my view) irrationality.

I think the motivation behind that irrationality will disappear. This will be a net positive for no-fee renters and condo owners — more supply for the former, and more demand for the latter. And on the flip side, it will be a net negative for (formerly) fee-paying renters and (currently) no-fee LLs. So the old inonada would have viewed this as a net negative personally, as the lack of competition he enjoyed for so long is not going to be a thing anymore.

>> Rebny implausibly claims it will raise rents which are already some of the world's highest.

I have come to appreciate REBNY’s skills in doublespeak, as a sort of performance art. If you think about it, rents will increase. The art is in the unspoken other half of the consequences.

The problem is nobody can trust Rebny for anything. It's obvious they are opposed to the interests of real estate consumers.

I first paid a broker fee when I landed in NYC over 20 years ago. I have vivid memories of looking for an open bank at 5.30 on a dark December in upper Manhattan to withdraw $1300 cash to turn into a cashier's check to give to the broker. I've had 3 rentals since then, all with fees paid by the owner. Condo and coop buildings continue to be a huge pain with their fees and cashier's checks and forms to be filled in triplicate, but that's because their Boards hate people (especially tenants) and deliberately make it hard.

Can someone translate what this person is saying? I can’t even put together a semblance of irrationality that could lead to this conclusion.

https://www.nytimes.com/2024/11/15/realestate/nyc-brokers-fees-reaction.html?unlocked_article_code=1.ak4.PeK2.eIe9mKbFTHSZ&smid=nytcore-ios-share&referringSource=articleShare

But some brokers said the rental process will become less transparent and plunge prospective tenants into apartment-hunting darkness. Sarah Saltzberg, the principal broker at Bohemia Realty Group and a member of the board of directors at REBNY, said that brokers would pull listings from online platforms and social media. Renters, she said, would have to call brokers directly instead to inquire about potential listings.

“You will have to call lots of people, and I don’t think that’s what anybody wants,” she said. “It’s not what we, in the industry, want. It makes it much harder.”

This is such a silly article, basically saying tenants are stupid and they need to pay brokers for out help to navigate the mind-boggling complexities of finding a rental in NYC. In the “potential scenario” that one broker gives, a landlord with a $5000 per month unit with a no tenant fee unit can decide to increase the rent 7-10% every year for 3 years to recoup the fee they paid, vs only increasing the rent 5% every three years for the same unit that the tenant paid the upfront fee. In the second case, where the tenant pays the fee upfront, the tenant saves money. Thus, broker fees save tenants money. Ok. What if a) the landlord decides to increase the rent 7-10% instead of 5% REGARDLESS if the tenant paid the broker fee or not?, 2) why can’t the the tenant leave if the landlord increases the rent 7-10% if the tenant feels such an increase is unreasonable and 3) why doesn’t the landlord just list the unit on their own? Whereas I see some value in RE agents assisting with sales of homes given the magnitude of the transaction, I really feel for rentals and leasing, there is absolutely no need for agents to be involved given the plethora of information out there and ease of advertising for free on the internet

I mean I think it's just common sense, in no world Is it more efficient and less costly to an end user to pay a large fee. I sort of solved this issue for myself when I broke free from working for large brokerage companies in 2006. At the time I was doing only rentals, and I simply capped what I would charge at one month, and in many cases charged half a month commission. Clients were very happy, and the referrals rolled in very consistently. My experience was renters were willing to pay a reasonable fee, for services rendered that made their life easier and more efficient. In my experience I found charging half a month to one month was a fee a client was willing to pay and felt was adequate compensation for the services I was providing. This goes for owners renting out their condo or co-op as well.

There are currently so many resources for renting an apartment online, I assumed 'rental agents ' were sort of a thing of the past?

Keith Burkhardt
TBG

>> why doesn’t the landlord just list the unit on their own?

Because time is money. Someone has to show up every time a potential tenant wants to see the place, at the hour convenient for the potential tenant. And you have to sift and smile through a lotta looksies. If the value of your time as the LL is lower than an agent’s, then it won’t make sense to you. But if you value your time higher, then you’d rather have an agent do it.

>> There are currently so many resources for renting an apartment online, I assumed 'rental agents ' were sort of a thing of the past?

I think StreetEasy was instrumental in ending the “rental agent” era of open listings and bait-and-switch. They worked hard to only allow exclusive listings on their site. Even in the days when they could only show (say) half the listings out there because of their tighter standards, a customer like me would say “screw that” to the world of open listings and bait-and-switch.

Nevertheless, the “listing agent” remains a thing. Who else is going to show the place? This bill targets that — the person hiring the broker (LL) pays the bill. Not the “rental agent”, to the extent there are any left.

BTW this is how it was for the longest time. On more than one occasion friends of friends would be talking about some apartment they rented and I would ask how they found it. If they said they went to the building and spoke with the super, who sent them to the managing agent, I would ask if they paid a fee. If the answer was yes, I told them how to contact NYS Dept of State and make a complaint and they would get their money back, and they did.

At some point in the 1990s, without publicly making any announcements that I saw the policy changed.

This is one instance where the government's intervention benefits everyone. Congrats to Chi Ossé who used his personal experience to identify a long-term market inefficiency and then take steps within his purview to seek to fix it and gather support for that fix.

I haven't really done rentals for years; they're a pain in the butt, they work out to low $/hr., Streeteasy charges big fees to advertise them, and the pro-tenant regulations are insane. (The easiest example to cite here is the amount that you can legally charge the tenant to run a credit check is lower than the amount it costs you to run a credit check.)

But I have done one recently, a co-op sublet where the landlord is a friend of mine in the hospital in another city. And the volume of interest in such a compressed time has had its own fun energy.

Still, needing to respond to so many time-limited queries would make it tougher, I think, for a small landlord to FRBO. At least if you FSBO, you're probably only showing a couple times a week, and you can work that around your day job.

Be interesting to see what happens.

Regarding the changes on the sales side, starting in January, all New York City rebny members will be required to have their buyer sign a buyer agreement. Some of the agreements that I've been presented with, are very far-reaching. I'm not sure what language the bigger firms will require, or whether or not they'll let individual agents carve out their own agreements. The times they are a changn'

“Dear Landlord, please don’t put a price on my soul” “my burden is heavy, my dreams are behind control”

That said included in the broker agreement to rent, it is stipulated that if the tenant buys the apartment, the broker is entitled to a broker commission. I am certain brokers benefited from this clause.

streetsmart,
Those clauses have been included for a long time. But the Department of State has taken the position that buyers can choose their own brokers for some time. And to be able to switch brokers. If there's no time frame listed on the agreement, or if there is one and it expires before the contract for the renter to buy the unit is executed, what would a court ruled regarding the enforceability of such a clause? I don't think it's clear.

Also, if the broker isn't involved in any way in the negotiation of the contract, what have they done to earn a commission? Just because someone puts a clause in a contract it doesn't mean it's enforceable. I'm not sure the gift is anything but the opportunity for lots of litigation.

One thing which will probably happen is that tenants will need to deal with a whole bunch of agents rather than one. They will need to be constantly searching for listings. It could potentially end up being a lot more work.

Keith,
Do you think buyers will spend a pile of money having their attorneys read these agreements before they sign them?

I think it's going to be interesting to see if buyers are even willing to sign these very very demanding agreements. Especially if they read a clause that dictates they pay up to 3% of the purchase price as a fee to their buyer agent.

Keith,
I don't disagree. Also, for things involving this kind of money I would think buyers would expect some negotiation of the instrument and I don't know if agents are even going to be allowed to do that. This may prove an advantage to smaller, more flexible firms over huge inflexible bureaucracies.

I also think that it was one thing for buyer's agents to be getting 3% when those agents could claim it was "free" to the buyer because the seller was paying the commission. It's quite another now that there will be no question that the buyer is actually paying the buyer's agent their commission.

30, for a change, we're actually in total agreement ; )

I'm surprised this isn't more of a Hot topic here on the forum. It actually has some very meaningful and tangible potential outcomes that I think will really change the landscape of The brokerage business in New York City over the next couple of years. As a small brokerage, I've really been using the leverage of adding commission back to the seller to get deals done, while charging my buyers a reasonable flat fee. Once buyers are faced with the new buyer agreements that are required in 2025, people are going to do a
lot more thinking about working with a buyer agent, that used to be 'free.'

Keith, Are the owners/buying brokers continuing to pay the buyer's commission for now or has there been any change in the last six months? I am sure it will eventually change.

Small changes right now, we have encountered two owners that were not offering a commission in Brooklyn. Other instead have been offering 2%, including two of our sellers. This will certainly be very market specific, apartment specific. However, the current market dictates offering a buyer commission for most properties.

I think 2% offered to the buyer's brokers seems reasonable.

2% sounds reasonable to me, too, as long as they're really in the weeds assembling the package.

I hope what we will see is the larger the deal the lower the commission rate.

I guess this is officially becoming a thing. Haven't accepted offer on another one of our listings, we're offering 2% to the buy side. Buyer agent has a signed buyer agreement with their client stating that they are responsible for paying anything short of 3%, . Wanted to make sure this was in the term sheet.

So this is definitely different, so far it seems buyers are not pushing back too much on having to pay, at least a 1% commission to their agent.