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Why do New Yorkers pay broker fees—and could we ever get rid of them?

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The standard 12 to 15 percent broker fee has long been an expensive toll particular to the NYC rental market; in the rest of the country, landlords tend to cover the costs associated with marketing and renting out their properties. But look across the pond, and you'll see that we're not the only ones shelling out.

Londoners—and indeed, renters throughout England—routinely pay a pretty penny in "letting fees" for the privilege of locking down a rental. Unsurprisingly, they're as sick of it as we are. Back in March, London-based publication The Debrief launched its Make Renting Fair campaign, calling for an outright ban on letting fees, similar to one that's already in place in Scotland. Since then, the petition has garnered more than a quarter of a million signatures, as well as support from both the Labor Party and the Liberal Democrats, Debrief Features Editor Vicky Spratt tells us. 

"Whenever you rent in the UK, you're liable to pay for the privilege, and there's no standardization at all," Spratt explains. "You can pay anywhere from £80 to £500 or £600, even though it really only costs £40 to do a credit check. " And while it is possible to find no-fee apartments in NYC—and indeed, landlords frequently offer to cover the fee as an incentive—this isn't the case in the UK, where the fees are unavoidable. As The Debrief writes in its petition, "Renting already costs the average person over one third of their salary, and letting agents' fees are basically just another way of penalising people who can’t afford to buy property." Sounds familiar.

While no one quite knows when broker fees first became standard practice in NYC—as Gothamist wrote earlier this year, the practice has been around for decades, at least—it seems clear that they're not going away anytime soon.

"New York is one of the most expensive markets, with the lowest vacancy rates, and a significant majority of renters versus owners," explains Joe Charat, founder of Naked Apartments, a site that allows users to filter search by apartments with waived or reduced fees. "The landlord has the luxury of not having to pay for that broker's fee out of their own pocket, because of the supply and demand dynamic—there are a lot of renters competing for the same apartments."

"Unless the market dynamics change, I don't see anything really changing," Charat adds.

In a way, this free-market dynamic sort of works. Case in point: As the rental market in NYC slows down, an increasing number of developers and landlords are sweetening the deal for renters by covering the broker fee, and even tossing in a free month's rent. "The no-fee concession is prevalent in all the lease-ups we have now," Douglas Elliman broker Glenn Davis points out.

In fact, the "no-fee" incentive found steady traction relatively recently, dating back to the months following the September 11th attacks. "It really became a huge thing after 9/11, when all these rental conversions were happening around the Financial District, but everyone left," says Davis. "They had all these empty buildings and were doing anything they could to lease up, offering huge incentives, including covering the broker fee. And that set the tone."

But as far as outlawing the fees full stop, don't get your hopes up: The New York Departent of State explicitly states that broker commissions are "not regulated by statute or regulation," but rather, to be negotiated between the client and the broker. In other words, good luck regulating something that the state has intentionally left to the market to decide.

Indeed, housing advocates here in New York tend to turn their attention to issues other than broker fees, though Churches United for Fair Housing executive director Rob Solano tells us, "It's already hard to find an apartment in New York City, and that extra burden of a 12 or 15 percent fee is unreasonable for anyone to pay. And if you continue to charge outrageous fees on market-rate apartment, it puts an overbearing burden on the affordable housing stock."

As for the Debrief's campaign, while it's garnered widespread support, to move forward, they'd need key backing from the conservative party that's currently in power, which may be an uphill battle. "The conservative government takes the view that the market should regulate itself, but it's clearly not," says Spratt. "When you're a consumer trying to consume a product that there isn't enough of, like housing, you can't take your business elsewhere." 

 

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