One of the biggest pieces of news in New York real estate lately has been the ruling that effectively prevents real estate brokers from collecting commissions (the rental broker fee) from rental tenants. This has been a common practice in the city for a long time. However, local and state legislators have been making sweeping changes to rental regulations this past year. As you can imagine, this latest ruling caused quite a stir in the real estate brokerage community.

About the Ruling

The ruling, which went into place only two weeks ago, would basically bar tenants from having to pay a broker fee. In turn, the landlord would be paying the commission on standard rental listings. Last week, a New York State judge issued a temporary restraining order on this ruling after the Real Estate Board of New York and other local brokerage groups sued the Department of State over the ruling. The restraining order will stay in place until at least March 13 as arguments from both sides will be properly heard and deliberated.

Only time will tell what happens with this new ruling that could dramatically change the rental market landscape throughout Manhattan and all other parts of the city.

Long-Term Market Effects

Since we are New York real estate brokers, it’s safe to assume on which side of the argument we stand. However, it may not be for all the reasons you think. The ruling was passed in an ongoing effort to protect tenants and we are all for that. On a surface level, it makes sense because they would save some money upfront by not having to pay the one-time broker fee to their real estate agent. The landlord would have to pay unless a tenant specifically hires a broker to help them find a unit.

The bigger concern is how it might affect rental prices over time. If landlords have to pay more to cover the brokerage commission when a new tenant moves in, then they are going to want to raise the rent. Ultimately the tenant will be paying for any increased costs of ownership and property management. This essentially includes the broker fee. In fact, it would like likely add up to a lot more than the upfront broker fee in the long run.

Understanding All Sides of the Story

And yes, the ruling would be a major blow to the agents and brokerages. The initial ruling was passed very suddenly and has hindered many rental transactions currently in process. It affects all active listings, as well. Many rental contracts currently in process may be in flux until a final judgment is made, which won’t happen until early next month at the soonest.

As you can see, this is far from a black and white argument. It’s easy to understand why tenants rejoiced when this ruling was passed and why tenant associations are fighting for it to stay in place. However, it could end up having worse long-term effects in the New York rental market if it potentially drives up rental costs even more.

Tom Postilio and Mickey Conlon work with home buyers, sellers, renters and landlords throughout Manhattan. If you have questions about New York real estate, want more information about the latest rental laws or you are looking to buy, sell or rent a property here in the city, they are the team to talk to for expert service with a personal touch. Contact Tom & Mickey today!