- The FARE Act shifts broker fee responsibility to landlords, reducing upfront costs for renters.
- New York City renters have faced high upfront costs, with broker fees adding thousands to expenses.
- Critics argue the FARE Act may lead to higher rents, but economists see minimal impact on prices.
In the summer of 2023, New Yorker Josh Magpantay was in a hurry to move. The price tag for a new spot — not including rent or a security deposit — was $7,000.
That's because Magpantay's apartment came with a broker's fee. Since he moved, he's felt locked in — even though he thinks the rent is too high — because of how much it would cost to move elsewhere and pay a similar fee.
Magpantay is far from alone: Fees paid to landlord-hired brokers as part of the upfront costs of signing up for a new apartment in New York can range from about one month's worth of rent to 15% of annual rent, which can add up to thousands of dollars paid out even before moving in.
But that might change soon for Magpantay and renters like him. As of June 11, the Fairness in Apartment Rental Expenses Act — known as the FARE Act — makes landlords responsible for paying brokers' fees, unless prospective tenants hire their own broker to assist them with their search.
"The law is clear. Whoever hires the broker pays the fee," Jackie Vazquez, a 29-year-old realtor in New York City, said. She added: "I think that sounds fair."
In 2024, around 47% of New York City rentals had a broker's fee. Between the fee, first month's rent, and a security deposit, upfront moving costs averaged almost $13,000 in New York City between January and April of this year.
Under the FARE Act, the average cost of moving into an apartment that previously charged the tenant a broker fee is expected to fall by 41.8%, per a report by the online renting platform StreetEasy. That means the average upfront lease cost, which includes the first month's rent, a security deposit, and the broker fee, would fall to $7,537, down from $12,951.
"The FARE Act won't necessarily bring a monumental shift in the rental market, but it's going to be a substantial win for renters, especially for affordability," Kenny Lee, an economist at StreetEasy and the author of the report, told Business Insider.
The law will also put New York City in line with most of the rest of the country, where brokers are paid by those who hire them.
In the short term, the law could open up pent-up demand from renters. Some in the industry expect a wave of New Yorkers who've postponed their apartment search until after the Act goes into effect to return to the market.
"Renters have been sitting on their hands, waiting for this thing to pass," Allia Mohamed, CEO of the leasing and landlord review platform openigloo, told Business Insider. "They're gonna get back in the market right when June 11 passes."
A small win for affordability
Before online rental listing platforms like StreetEasy and RentHop became ubiquitous, some renters hired brokers to help them find apartments. But these days, tenants can do a lot of that work themselves simply by scrolling the listing platforms.
Opponents and critics of the FARE Act argue landlords will simply raise rents to cover the brokers' fees, thus turning a one-time fee for tenants into a permanent upcharge.
The Real Estate Board of New York, a major industry group, has sued to block the law, arguing it would increase costs and cause rental market chaos. A spokesperson for the group, Kay Sarlin Wright, pointed BI to talking points arguing the law would also hurt real estate agents and rob tenants of their expertise.
"For future moves, I'm worried about the increase in rental prices because I can definitely see landlords lumping the brokerage fee into the rent prices to recoup this cost," Lexis Xia, a 29-year-old finance director and lifelong resident of New York, said.
But economists have found that the impact on rent is minimal, and that rents are primarily determined by supply and demand rather than landlords' expenses. Lee found that properties that dropped broker fees in April of this year saw rent increases of 5.6%, compared with a 4.6% increase in rent in the rest of the market.
"This small difference tells us that property managers are already absorbing much of the costs associated with bringing the leasing activity in-house or compensating the brokers themselves, and the data really tells us that they'll continue to do so," Lee said.
For four years, Dante Fiallo, a 29-year-old actor in New York City, was locked into an apartment where the rent continually increased. Every year, he said, his landlords kept hiking the price, and he just had to swallow it because he couldn't afford broker fees.
"We would've left sooner or we would not have renewed if we could have gone to another place," Fiallo said. "But we never had enough money upfront to do that."
Landlords who significantly raise rents might have trouble competing for tenants. Mohamed suspects that landlords who choose to use brokers going forward will ultimately negotiate lower fees.
Vazquez, the broker, thinks it's an overall positive shift. She said the value is clear: A landlord gets value from hiring a listing agent or broker to aid in renting out the apartment. A tenant choosing to hire a broker receives value from someone representing them and weeding through the apartment market on their behalf.
"It's the power of choice, and I think that's very empowering for someone navigating the most intimidating real estate market in the world," she said. "So I think it gives so much clarity and power back to the renters."
There are also landlords who say they won't post their units online and will instead rely on word of mouth to fill their apartments, in order to avoid doing the legwork brokers have traditionally done for them. Mohamed doesn't buy that.
"At the end of the day, landlords want to fill their apartments," she said. "If posting and advertising the apartment online is what's going to get them a renter faster, that's what they will continue to do."
Are you a renter or broker with a story to share about fees? Contact these reporters at [email protected] and [email protected].
