NYC Brokers Fees For Rentals (Good Or Bad?)



There are a bunch of new rental policies due to a bill Governor Cuomo signed last year, which protects tenants in what is arguably the strongest reform to date. This skews the power more to the tenants and landlords are taking the pressure for it. You can read more about the reforms by clicking on this link by Bloomberg.com. But today, I am going to be talking about the latest mandate that just passed, but is being litigated, of no more brokers fees in NYC rental real estate.

REBNY filed an Article 78 proceeding against the Department of State (DOS). An Article 78 proceeding is a legal challenge of administrative bodies, agencies, or officers and it takes place in New York State Supreme Court. Some of the biggest brokerages in New York City such as Corcoran Group, Douglas Elliman, Sotheby's, and others are on board the Article 78.

What they are fighting is a guidance by the DOS of the new aforementioned rental laws that passed. As of January 31, the DOS now interprets who pays who in rental broker's fees. They now mention that for all broker-landlord agencies, the tenant must not pay brokers fees, which puts the burden on the Landlord to pay their fees. However, for tenant-lessee representations, the renter may pay brokers fees to their respective agents' brokerages.

Here are my thoughts on this new guidance: Chaos.

There are so many economic variables with the new rental reforms alongside this new guidance that it would require time to see what would truly happen to NYC real estate market as a whole. Based on what I have seen already, many fixed rate rentals are becoming unprofitable and thereby being sold off. If there was a maximum 4% inflation rate year over year, multi-family investors would have less shelf-life in rental income. Further, after viewing the data on Rentjungle.com, there was a simple average of 6% increase in rent over a span of 10 years. With the recent reforms, it would shift the dynamics of purchasing multi-unit rental properties. There might be less interest in landlords wanting to do anything with section 8 renters or rent-stabilized properties whatsoever.

To play devil's advocate, the numbers of rent-stabilized buildings being converted to traditional rentals and the eviction rates are staggering. The recent reforms have shifted power dramatically from rental property owners to the tenants. Typically, incentives are what drives real estate investments, and these recent reforms and guidance might create externalities. For example, Amazon recently scrapped plans to create a Queens office hub in reaction to political pushback from tax incentives they would receive for investing in their property.

Perhaps this will dramatically alter landlord-broker relationships for the negative, and increase demand for other types of properties. The landscape of NYC real estate is vast and among them are 2 or 3 family homes. In Manhattan, there are lots of condos, coops and rental buildings. It will be interesting to see how the Article 78 proceedings will go and what the effects of all of these reforms will transpire.

Sources:
https://therealdeal.com/2020/02/07/real-estate-industry-to-sue-nys-over-rental-commission-ban/
https://therealdeal.com/2020/02/05/owners-must-pay-rental-broker-fees-says-new-state-guidance/
https://therealdeal.com/issues_articles/game-over/
https://www.bloomberg.com/news/articles/2019-06-12/nyc-tenants-get-a-rent-law-blessing-that-landlords-see-as-curse

NYC Brokers Fees For Rentals (Good Or Bad?) NYC Brokers Fees For Rentals (Good Or Bad?) Reviewed by Alex Sung on February 20, 2020 Rating: 5

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