I'm a broker who supports the FARE Act; here's why
It's really only fair.
The FARE Act, introduced by City Council Member Chi Osse last June, is NYC’s latest attempt to rein in the fees tenants pay at lease signing.
In New York, on most occasions, the landlord hires an agent but the tenant pays him. And the standard for that payment is nearly two months of rent, sent to someone who has a signed contract with (and fiduciary duty to) the landlord.
CM Osse’s bill stipulates that whoever hires the agent pays the agent. That’s it. This version does not cap agent commissions (because we’re now an optional service). It includes a 60 day delay between passing and enactment, so it will likely take effect in winter, not mid-transaction and not during the busy season. It is the most pro-agent version of the bill we’ve seen, in part because of input from agents like myself. So to those who are furious that I’m supporting it, please understand this is the best we are gonna do. Because of that, and because I believe this bill will help vulnerable people leave bad situations and legitimately save lives, I will be testifying on behalf of the FARE Act on June 12th in front of City Council.
Wednesday’s hearing should be as simple as giving my opinion. But because of how hard REBNY, the Real Estate Board of New York, is lobbying, I’m terrified. I don’t expect to be Boeing-ed or anything, don’t worry. But I will have to walk past hundreds if not thousands of my kinda-colleagues (we’re all independent contractors) who consider me a traitor based on what they’ve been told. I’ve been warned I’ll get hate; my social media is set to private.
Oddly, we’ve never been directly asked what we, as agents, think about this bill. I have said for years that I support this type of legislation, which is moderately popular with agents (especially the thousands of us who rent), but deeply unpopular with brokerage heads and higher-ups. There is an official industry POV, but there are tens of thousands of individual business owners; we will not all agree. I’m not even the most prominent pro-FARE Act agent.
I know first hand that being a rental salesperson is a thankless, tenuous hustle. In general, less than 10% of real estate agents make it to their 5th year in the business. We do not have salaries. We do not have health insurance. We do not have 401K’s. Will there be some people who make less money? Yes. But it’s unlikely to force anyone out of the business who wasn’t headed that direction already. We aren’t entitled to a certain income and policies change constantly; that’s part of the job. If landlords pay us less than tenants were expected to pay, it just shows the current system runs on exploitation.
Another version of this law already passed for one glorious week in 2019, and we figured it out. The worst part was that it happened overnight without warning, which won’t be the case here. Intro 360 is simple, clean, and easy to understand. It does not require DHCR or housing court to enforce it. It’s a good bill, which is why it has gotten so far.
It’s obvious to everyone outside of real estate that this law should pass. But in the interest of fairness, I’m going point by point through the arguments against it. We’ve now had a year’s worth of feedback, and I think this addresses all angles.
Real Estate’s Arguments Against The FARE Act:
1. This will increase everyone’s rents and make NYC unaffordable.
The logic here is that landlords who currently make tenants pay will incur additional expenses, then pass these expenses along through higher rents. Rents are already so high; do we REALLY want them to increase??? It’s almost a threat.
This is THE argument. It’s what the industry is shouting from the rooftops to keep tenants from supporting the bill. But I think it’s wrong and also disingenuous. This talking point comes from REBNY. REBNY represents the interests of real estate: landlords, developers, and agents. REBNY takes money from these groups and lobbies on their behalf. You know who doesn’t pay REBNY? Tenants. Do we really think REBNY is going around trying to protect tenants, at considerable expense, from higher rents? No. Higher rents mean more money for landlords and higher commissions for agents. If this bill would get their clients significantly more money, REBNY would support it. IMO, they cannot actually believe what they’re saying.
New York is already unaffordable, and while I think some asking rents will go up (landlords are already telling us they’ll try it), they’ll only rise as much as the market will bear, because rents are not set primarily by landlord expenses.
The same apartment rents for more money if the lease starts in August than if it starts in February. Same lease, same place, same landlord expenses. Only market conditions have shifted. That’s why landlords may ask for 13-18 month leases, to get the renewal date switched to a summer month. These are two units in the same building, same size and layout, one floor apart. This January, 6D rented for $4,825/mo with an additional month free, bringing the “net effective” to $4,454. 7D is now “in contract” for $5,300/mo with no free months. That’s over $10k/year additional rental income, simply because the lease started later.
In 2020/21, ~90% of rental listings on StreetEasy were no fee because the vacancy rate temporarily increased. Rents also dropped. Landlord expenses are not the primary drivers of rents, and tenant side fees only happen in a super-low-vacancy environment.
When you want to buy an investment property, we run comps and look at potential rent roll versus anticipated expenses (don’t make me say cap rate) to calculate whether it’s a good purchase. You start with market data and then see if you can make the numbers work; you don’t buy a place and base the asking rent on your monthly expenses. No one will pay you $6k a month in rent just because your overhead is $5,500.
Landlords don’t pay their agents 15% except in rare cases. The going rate is about a month of rent (8.3%). So even if they passed this month along to tenants, spread out over a year instead of all at once, it would still be less than 15%, saving tenants money. Renewals would be off a higher base rent, but the tenant would have more leverage to negotiate; any cost to fill a vacancy would fall on the landlord. And a landlord generally has 30 days from lease signing to pay their agent, to essentially hand over the first month’s rent without reaching into their own pocket. In contrast, when a tenant pays 15%, it’s on top of rent paid in their current place, the first month of rent in their new place, and one month security deposit, all due at lease signing, before they even have their old security deposit back.
2. Because rents will be higher, people won’t be able to qualify and the real estate taxes on condos/co-ops nearby will increase.
The guarantor system props up rents, especially on Manhattan, well above where they’d fall based on people’s income. Look at large rental buildings like The Chrystie and you’ll find a significant percentage of tenants do not earn 40x. And if the act passes, asking rents rise, and no one can qualify, landlords will have to charge less. As far as the second part, I can’t advise on tax policy, but I believe this argument is because condos and co-ops are taxed based on their potential rental value, while brownstones are taxed on assessed value. You’ll have to ask your CPA friends for more information, but if you look at the difference in tax burden between condos and the neighboring brownstones, you’ll be deeply confused. As for this argument, condos and co-ops should be angry at the record-breaking prices landlords are already getting. Increases since 2021 are more significant than what this bill will do.
3. Landlords will stop working with agents, meaning agents won’t make money.
When landlords stop hiring agents, one of two things happens. They either handle the rental themselves or, if they have a large enough portfolio, they hire a leasing team. This leasing team is often made up of former agents who got tired of the grind and wanted the security of a salary and health insurance. I think changing the system will make landlords take us less for granted, because they’ll be the one paying for our services. We provide a lot of value (and take on significant legal liability), but that isn’t seen by a tenant who comes to our listing. And most of the work we do on the landlord side does not benefit them. Supporting and passing this bill will improve our standing with the general public, which I think has broader implications than people realize.
4. Mom and pop landlords will go bankrupt.
When you are a landlord, you are supposed to set aside funds for inevitable repairs and maintenance as well as months of possible vacancy. In NYC, it’s so competitive to find housing that in non-luxury units our vacancy rate is almost zero. True “mom and pop” landlords will be largely unaffected; they may have to pay one month of rent every few years for their rental unit, if they choose to hire an agent. The landlords that will take a significant hit — the more units the more you’ll be affected — own larger portfolios and include many of those on the City’s Worst Landlords Watchlist. Companies buy and sell hundreds of walk-up buildings like it’s nothing, enlisting brokerages to run them as tenant-pays rentals and with a shoe-string management staff to maximize profits. I believe they’ll continue to make plenty of money, but if they don’t, their livelihood is less important than their tenants’ lives.
5. There will be less transparency.
When they say less transparency they seem to mean less consumer-facing online visibility, something they historically don’t like anyway. One of the reasons given is that fewer apartments will be listed on StreetEasy. Why? Because StreetEasy, a subsidiary of Zillow, charges $7/day for rental listings. We are expected to pay it, but apparently landlords won’t (though some already do and rent apts out themselves on SE). There’s also a belief that some landlords won’t bother showing apartments, since it’s too expensive to rent them, and they’ll be removed from the market. But a one month fee is less than a year of lost income because you didn’t want to show the apartment. I think this is a bluff. A landlord wants and needs tenants for his portfolio; hiding listings from the public because this bill passed does not make sense.
6. We just need to teach tenants they can negotiate the fees down, not make landlords pay them.
I find it insulting that this is my industry’s plan to fix broker fees without passing FARE. First off, if we are blocking the bill to protect agent commissions, why are we also telling tenants they should negotiate and pay agents less? Second, the agent will confirm what commission is being offered before submitting your application to the landlord. You will often be told up front that the fee has been set, and you are not allowed to apply until you agree to it. If you have your own agent, the only part of the fee that’s negotiable is the part for the person actually hired to help you. There are times that you can negotiate as a tenant, but it is usually because you’re renting an expensive luxury unit, or there’s a ton of vacancy. When someone is getting 4 applications (or 40 if we’re talking about the West Village right now) you’re paying a full fee.
7. The FARE Act will remove choice from the equation.
Are you sick of hearing these arguments yet? Because I am. But we gotsta see it through, my boy. Right now, one person has choice: the landlord. They choose whether to hire an agent as well as who pays the fee. They also set the rent — with help from their agent’s market analysis, but they have the final say. They choose which application to accept (although their agent chooses whether/how to present each one). A tenant can choose to apply, absolutely, but they don’t choose what they pay to a listing side agent and how that agent presents their application if they try to negotiate the fee. They can’t even always bring their own agent, as in some cases the listing side will insist on collecting the full 15%. In the new system, each party to the transaction can decide whether or not to hire an agent, and each agent can negotiate what services will be provided and for what amount. Clear eyes, full hearts, can’t lose.
This is a pretty comprehensive list, but part of the point of having a hearing, and the review period afterwards, is to hear and address any additional concerns about the impacts of this bill. The experts working on this aren’t some naive group of bleeding hearts; these are savvy politicians and city workers who truly care about the people they represent and want to help, not hurt.
At the end of the day, while this post is very agent focused, changing the system isn’t even about us. Our livelihood does not take precedence over actual, human lives. If you’ve never been stuck in an unsafe living situation, seen domestic violence, or been housing insecure, congratulations. You may not need this bill, even if you want it. But there are enough New Yorkers living in appalling conditions, trapped by exorbitant fees and a system that gives landlords all the power (keep in mind many of these tenants are also people of color and/or immigrants). Passing the FARE Act has taken way too long, and rather than continue spending more and more agent money to fight it, as the industry has since 2019, we need to let it go.
There will be unintended consequences; that is unavoidable (Hochul I oughta…). But not all of those consequences will be bad. More people will, theoretically, be able to move, which means more potential business for agents and freedom for tenants. Maybe some landlords will be happy to see difficult tenants move on. By holding onto more cash, maybe people can buy earlier, which is also better for everyone. And again, I cannot overstate how unpopular with the public our position here is. We should give an inch before they take a mile.
If you do support this bill, it’s important that you show up at the hearing on Wednesday, whether or not you testify, and make your support known. Not because we don’t expect it to pass — it has 32 sponsors thus far out of 51 Council Members — but because we want a veto-proof two thirds majority to avoid any nonsense from Mayor Adams.
And if you don’t, that’s fine. But please allow me my opinion. We all have our own unique experiences and takes, and I would like to speak for myself rather than have my industry speak for me.
xo
Anna
Happy Friday, everyone, if you made it this far! And remember, subscribe for a lot of exciting perks, but Fridays will always remain #freerealestate.
