UPDATE August 10, 2020 – In light of the legal battle currently being fought over the legality of the new broker fee rules, a NY State Court has temporarily barred the new broker fee laws from going into effect. The real estate industry and state regulators have postponed the court date to adjudicate the legality of the new broker fee rules until September 2020, at the earliest. As of this update, and until the NY State Court comes down with a final decision, both tenant’s and landlord’s agents can collect broker fees in New York State.
On January 31, 2020, the New York Department of State issued guidance holding that a “landlord’s agent” may no longer collect a broker fee from a tenant. Below is an excerpt of the guidance itself:
Despite click-bait headlines proclaiming “No More Broker Fees,” media reports overlook that the guidance only applies to landlord’s agents. An agent who represents a tenant (rather than the landlord) can still collect a broker fee from that tenant.
It can be difficult for renters to tell whether they are working with a “landlord’s agent” or a “tenant’s agent.”
A landlord’s has an exclusivity agreement with the landlord; they are the only agent permitted to market and rent the apartment. Such an agent would almost certainly be prohibited from collecting a fee from renter under the new guidance.
Open Listings in New York City
Many New York City apartments are “open listings.” No single agent has an exclusive right to advertise and rent the apartment. Tenant’s agents generally show open listings — these agents do not have a preexisting relationship with the landlord.
A tenant’s agent can technically collect a fee from a renter even under the new rules. However, it’s important to note that many (if not most) open listings are “no fee.” The landlord will pay a broker fee (“OP“) to the first agent to bring them a viable tenant.
A tenant shouldn’t be concerned about whether they’re working with a “landlord’s agent” or a “tenant’s agent” for a no fee listing. They won’t pay a fee regardless of the agent’s classification.
That said, some open listings may not offer an OP to the agent. Since the renter is working with a tenant’s agent, the tenant may have to pay the broker fee.
Given the recent guidance, agents must be extremely clear at the outset of their relationship with a tenant that they are a “tenant’s agent” and permitted to a collect a fee from the tenant.
Renters should ask their agent whether they’ll be showing apartments that carry a fee.
Hidden Deals
The dirty little secret of NYC rentals is that fee apartments are the best deals on the market. “No fee” apartments have a higher monthly rent because the landlord bakes the cost of the broker fee into the rent. Apartments with fees usually carry lower monthly rents and can be incredibly good finds. This is especially true if the tenant doesn’t plan on moving for a few years.
Editor’s Note: We updated this article to enhance readability.
