New York City Real Estate | Brokers say cap on rental fees will hurt more than help - Spire Group Inc.

BROKERS SAY CAP ON RENTAL FEES WILL HURT MORE THAN HELP

by WILL BREDDERMAN , Crains New York Business
Date Publish: Monday May 20, 2019

They’re usually independent contractors, working long hours with no benefits and no guarantee of pay. Their earnings are often modest, averaging $53,561 a year according to Glassdoor. They have to split their commissions or remit a fee to the firm they associate with. 

They are the city’s real estate rental agents and brokers, and some members of the City Council want to cap their compensation.

A bill proposed last week by Manhattan Councilmembers  Keith Powers and Carlina Rivera would make it “unlawful for any individual or individuals to collect fees in connection with a rental real estate transaction from a tenant or prospective tenant which, in the aggregate, exceed the value of one month of rent of the property.?”

The proposal bewildered Adam Mahfouda, founder of Oxford Property Group. Rental agents and brokers, he noted, are near the bottom of the real estate food chain—people just entering the field, making far less than their colleagues in sales and many working outside the most desirable areas of the city.

Moreover, thanks to the advent of online apartment listings, would-be tenants can increasingly choose whether to work with an intermediary or seek apartments on their own.

“That’s how the economy should work: people compete and drive prices down,” Mahfouda told Crain’s. “The market should allow for the rates to be set, not the government.”

Moving the goalposts

Gary Malin, president of Citi Habitats, a brokerage with eight locations in the city, agreed. He noted that rental agents often market and show dozens of available rentals before closing a deal, investing quantities of time and money in hopes of a return.

“You’re making it more difficult for people to feed their families,” Malin said of the bill. “These people have made financial commitments based on a business they thought worked a certain way.”

But the bill’s co-sponsor noted that the measure is part of a package of reforms that would also curtail security deposits and other extraneous payments involved in obtaining a new lease.

“This legislation addresses the astronomical costs associated with renting an apartment in New York City,” Rivera said in a statement. “Every day renters are being asked to pay thousands of dollars in upfront fees before even moving in their first piece of furniture.”

But the councilwoman signaled that she’d heard real estate brokers’ objections and was open to amending the legislation. And Powers told The Real Deal earlier this month that the bill would not apply to cases where renters contract agents to help them find an apartment, but only when the broker is working on behalf of the landlord. Further, he indicated that the real intention is to push the cost of the interlocutor’s services from the tenant onto the property owner.

Passing bucks

But Bianka Yankov, principal at the Spire Group, argued that the landlords—particularly those who own properties at the more modest end of the price spectrum—would simply pass the new burdens onto their tenants.

“The rents will go up for people on those entry-level apartments, and it becomes less affordable for students and people just starting in their careers and moving to New York,” she warned. “It’s a trickle-down effect.”

And that effect won’t just erode business at brokerages, asserted Jonathan Greenspan, founder of the listings platform On-Line Residential. He fears the law would mean fewer people entering the sector and many others fleeing, slashing demand for the sort of service his company offers.

“I think there will be fewer brokers, and that would be an adverse effect for me,” said Greenspan, who has sent a letter to Powers asking him to reconsider the proposal. “This is not an easy industry to make a living in. And the agent is a low figure on the totem pole.” 

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