Landlords say they are raising rents or even parting with their brokers when the FARE Act, which requires them pay the fee for real estate agents they hire, goes into effect on Wednesday.
Photo: Alex Kent
The day has come — almost: Following a series of legislative and legal battles, protests outside City Hall, hurt feelings over the nature and basic value of one’s work, and months of waiting, the law banning the broker fee as we know it is set to go into effect. Come Wednesday, barring any last-minute developments, the Fairness in Apartment Rentals Act (the FARE Act) will require landlords to pay the brokers they hire themselves. So what are landlords saying about paying that 12 to 15 percent of the annual rent that they used to pass off to tenants? Well, they don’t want to pay it, either. It is, after all, quite a lot of money. “I can’t eat over a month’s rent,” says a landlord who owns an eight-unit building in Chinatown. “I’ve got an ROI I’ve got to hit.”
What’s a landlord to do? Jude Bernard, who has a portfolio of 33 apartments across Harlem and Central Brooklyn, tells me he raised his rents on June 1. A one-bed he owns in Clinton Hill that previously rented for $3,200 is now going for $3,600 — which is just over 11 percent of the annual rent. “This is a direct result of this, just to cover the cost of the FARE Act,” Bernard says. He’s also now offering people two-year leases. When I ask him if his tenants will get a lower rent rate the second year, since ostensibly the broker fee’s been covered, Bernard says he’s still raising the rent for that second year — but only slightly. “I’m keeping the same tenant, and I’m not advertising, and I’m not having to pay a broker’s fee,” he says. “As opposed to me doing it $3,600 this year and then having to do it $4,000 next year.” So far, he claims he hasn’t had a problem with the higher rents — both because of the low-vacancy rate and the fact that other landlords are doing it. “All the groups I’m in are also stating this is the only way to combat it,” he says.
This kind of inflation could be chest puffing or an outlier, at least according to a new report by StreetEasy that found rental properties that stopped charging tenants a broker fee in recent months haven’t gotten that much more expensive. For the no-fee units, the report found an annual increase in asking rents of 5.3 percent in April, which isn’t that much higher than the 4.6 percent increase among properties that kept charging broker fees. “Had property managers fully passed the broker fee, typically about 12 percent of the annual rent, onto tenants as a higher base rent, the annual increases for the properties that switched to no-fee rentals would have been 10.3 percent on average in April,” writes Kenny Lee, StreetEasy’s senior economist. And we heard some of that, too — increases but not crazy increases. One landlord whose rental portfolio encompasses 70 units, estimates they’ve raised prices in recent months by around 5 to 7 percent compared to 3 percent in previous years. Some of that, they say, is the change in broker-fee structures — but it’s not only that, they admit. There are always market variables.
Some landlords I talked to are going to forego brokers and buzz in apartment seekers themselves. One property owner whose family leases a pair of buildings in Manhattan that have a mix of 20 free-market and rent-stabilized units tells me they plan to forego brokers — and even listing the units. Instead, they say, they’ll rely on word of mouth for filling their apartments, saying their adult children are “connected with a lot of people.” “It would be a transaction involving a tenant close to the family one way or another. Maybe a grandchild, a niece or nephew of an in-law,” the landlord tells me. “These apartments will never be listed.”
Another landlord who owns 40 apartments in Manhattan and Brooklyn says, at least for now, they probably won’t use a broker to rent vacant units. They’re skeptical about their ability to find tenants at elevated rents, and they say they can’t afford to pay several thousand dollars per unit on top of their mortgage payments, taxes, and other expenses. “I may have to do the legwork,” this landlord says, who would much prefer that things just stay the same. Tenants were unhappy, they admit. “But it didn’t stop them from renting,” they said. “It didn’t stop the market from functioning. Someone got a little bee in their bonnet and decided to push this thing along.”