Real Estate Fees Multiplying Like Burrough Rats
Real estate agents in New York City are drawing criticism for charging exorbitant fees to tenants, even when they provide minimal services. The issue of massive broker fees has long plagued prospective renters in the city, but recent reports reveal that some brokers are demanding hefty commissions without even accompanying clients to property showings.
This exploitative practice has sparked outrage among tenants who feel the fees contribute to gentrification and make affordable housing inaccessible.
Bri’anna Moore, a 31-year-old searching for a one-bedroom apartment in Brooklyn, encountered brokers who simply texted her the lock code and expected to receive their commission.
Even those who found listings independently without the assistance of an agent were required to pay fees as high as $5,000 for a rent-stabilized unit priced at $1,243 per month. Moore described this situation as predatory, emphasizing that it perpetuates the gentrification process and limits housing options to only the wealthy.
Even within the real estate industry, some brokers are expressing disgust at the prevailing practices. Keyan Sanai, the top rental agent at Douglas Elliman in New York City, admitted that charging two months’ rent as a broker’s fee is excessive for the limited work involved.
He attributed the problem to a focus on money and greed, highlighting the desire to maximize profit without putting in substantial effort. Sanai argued for a fairer system, suggesting that renting a single apartment for a 15 percent fee would be more reasonable than renting two units for a one-month fee.
The rental market in New York City experienced a collapse during the early stages of the pandemic but rebounded significantly as tenants returned. The subsequent surge in demand, coupled with limited inventory, created a highly competitive landscape with bidding wars and allegations of price-gouging. Last summer, reports surfaced of broker fees reaching as high as $20,000 for rent-stabilized apartments that were intended to be affordable.
Currently, with prices at record highs, many brokers insist on a fee equivalent to 15 percent of the annual rent.
In May, the median cost of renting an apartment in Manhattan stood at $4,395 per month, meaning a 15 percent fee would require tenants to pay an upfront sum of $7,911, not including the security deposit and first month’s rent that landlords typically demand.
Ian Slater, a prominent agent at Compass, publicly denounced the entire concept of broker fees, arguing that landlords should bear the responsibility for paying them. However, Slater acknowledged that renters often only witness a fraction of the work performed by brokers, such as dealing with contractors, addressing insurance matters, and managing constant calls and messages. He shed light on the less visible aspects of the job, such as enduring verbal abuse from disgruntled clients.
Slater also revealed that junior brokers, who handle lower-priced listings, earn considerably less than expected. Brokers typically share at least half of their fees with their brokerage firms and sometimes have to split the commission further among other agents.
While the current market appears lucrative for agents, Slater cautioned that it could easily fluctuate as it did during the initial phase of the COVID-19 pandemic, leaving them with an unreliable income.
Sanai expressed further concern about inexperienced agents who are driven by the desire to secure substantial fees, despite their limited expertise and financial capacity. He criticized these agents as untrustworthy and emphasized that many listing agents are now ignoring messages from brokers representing prospective renters due to the need to split the fee.
Factors of Market Demand
Several factors contribute to the intense demand in the current market. Tenants who left the city during the pandemic are gradually returning, summer months traditionally witness heightened activity, and the high cost of moving discourages people from seeking new housing, resulting in reduced vacancies.
Additionally, rising interest rates have discouraged potential buyers, leading them to opt for rentals instead. Reba Miller, a Compass agent with a track record of selling over $1.5 billion in property, noted that co-ops and condos, which used to sell quickly, now require numerous showings before finding buyers.
Lawmakers Weigh In
In February 2020, broker fees for renters were temporarily banned in New York City, although the ban was later halted by a judge’s injunction. State Senator Jabari Brisport and Assemblymember Zohran Mamdani are now spearheading efforts to reintroduce legislation to prevent landlords from passing on broker fees to tenants.
Their proposed bill aims to shift the responsibility for paying the commission to the landlords, rather than the tenants. However, it remains uncertain whether the bill will receive a vote before the current legislative session concludes. If it fails to pass, the lawmakers will need to wait until the next session begins in January to pursue it further.
Brisport emphasized the exploitative nature of broker fees when landlords hire brokers but expect tenants to foot the bill. He clarified that the bill is not intended to deprive agents of their income, but rather to reallocate the financial burden associated with the commission.
Mamdani shared a personal experience where his own chief of staff was asked to pay an exorbitant $7,000 broker fee. He underscored the issue of residents being priced out of the neighborhoods they helped develop, only to be told to find another apartment if they couldn’t afford the high fees.
New York City Councilmember Chi Ossé plans to introduce his own bill to address the issue of excessive fees charged by brokers. Ossé aims to implement measures to rein in these fees and promote more equitable practices.
Real estate lobbyists have opposed these regulatory efforts, contending that laws obligating landlords to cover broker fees would result in increased rent prices. Mamdani countered this argument, stating that higher rents would still be more affordable than the upfront costs that demand tenants to have substantial savings.
Many agents also believe that renters fail to comprehend the behind-the-scenes work and justifications that warrant their commissions.
Several apartment seekers who spoke to media outlets expressed skepticism toward these claims. Pierre Mballa, a 25-year-old actor, revealed that brokers are demanding fees for subpar units without complete kitchens or living rooms.
Mballa lamented that, despite having good credit and reasonable income, he and his roommates could not afford to pay $5,000 upfront, not considering additional moving costs.
Another individual, Catherine Lindsay, a business development manager, shared her experience of brokers requesting the equivalent of a month’s rent merely to submit an application, promising reimbursement if the application was rejected.
To the disappointment of those hoping for a slowdown in the market, Tara Steppacher from Sotheby’s International Realty predicted that the pace of the market would only intensify.
As the debate over broker fees rages on, tenants and lawmakers continue to push for reforms to alleviate the financial burden on renters.
The outcome of these legislative efforts will determine whether the current system undergoes meaningful changes to make housing more affordable and accessible for all New Yorkers.