NYC Security Deposit And Broker Fee Limit: What to Know
Throughout New York, there’s been some recent uproar surrounding the proposed security deposit and broker fee limit which could see property agents and brokers suffer a significant dip in their income, or even worse, a change in career altogether.
The security deposit and broker fee limit is a bill that is supposedly aimed at helping low-income earners easily secure property rentals by cutting down on the fee paid by prospective renters as security deposit and asking proper owners to pay their own agents/brokers.
This new legislation was proposed by Manhattan council member, Keith Powers, and it seeks to limit the upfront cost faced by many tenants in the rental process is being disputed by hundreds of brokers and agents who are raising their voices against the prospect of having their fees cut.
At the hearing which took place at the City Council on Thursday, the 250-seater room was packed full with advocates on either side, with a crowd of several hundreds of agents and brokers needing to be restrained by police from gaining access to the already packed full venue. Outside, loud chants of “trash the cap” and “let us in” could be heard and placards that read “Don’t cap my income” and “Agents are tenants too” could be seen.
The reason for all the noise? Well, it appears that efforts are being intensified towards making it easier for renters to avail themselves of rental property and the new proposal is recommending brokers and agents hired by landlords to lease apartments to charge tenants a fee of no more than one month’s rent. That’s about half of the typical fee of 15 percent. And that’s why this proposal is drawing vitriol from the brokers and agents who are reminding everyone that they are tenants too are feeling hard done by this new move — one that might hurt their livelihoods.
Although nothing has been finalized, the saga around the proposed security deposit and brokers fee limit has become a hot topic of debate in real estate circles across New York. Keith’s bill has one intention, and perhaps it can be thought of as something of a noble cause too; to make it more affordable to rent an apartment in New York by mandating landlords to pay the people they hire and not putting that cost on the tenants. The feeling is that the outlandish agent fees often accompanying rentals puts undue strain on the renters.
While making his point, council member Keith emphasized the law’s intent to cut down on the upfront costs that often make it difficult for low-income renters to find housing. He attempted to distance the bill from any talk of slashing significant sums off brokers’ commissions.
As part of the new proposal, a separate measure which would restrict security deposits to one month’s rent — something that is already being practiced for rent-stabilized New York apartments — is also being talked up. “Both stipulations work to streamline the process and ensure renters are not taken for a ride,” said council member, Carlina Rivera.
But the agents and brokers on the other side of the table are having none of it, hammering on the fact that they work as independent contractors and pay taxes, health insurance and also take care of business expenses of those very fees that are now in danger of getting slashed.
According to a 2018 data from the U.S. Department of Labor data, the average annual wages of a real estate broker and sales agent in the U.S. was $63,140 with a median hourly wage of $22.92. If the bill holds up and becomes law, it is argued that individuals who are staffed at brokerages will be staring down the barrel of unemployment after the massive layoffs that is likely to follow.
“If this bill were to pass it would be quite devastating. Truthfully, it would drastically lower the income of my agents—as well as all the other agents out there. I personally would have to lay off some staff,” says David Schlam, president and founder of City Connections Realty, which currently employs around a hundred brokers.
And then there were others who argued that even if landlords did pay more out of pocket to their sales teams, renters would likely be faced with hikes as a consequence, turning a one-time cost into a complicated recurring burden.
“Rents will go up because when the city mandates that owners pay even a portion of the brokers fee that fee is going to get baked into the monthly rent,” said Douglas Wagner of Bond NY Real Estate.
As it stands, both sides do agree that there is an affordability crisis in the city but those who argue in favor of the interests of the brokers/agents are of the opinion that making the agent and brokers bear the brunt is not the way to go as they too earn from this undertaking and have homes to keep too.
The position of the de Blasio administration on the matter currently hovers around backing the measure to limit security deposits to one month, but the measure to cap brokers’ fees appears to be a no-go area.
As things stand, it remains unclear when the bills will return to the City Council’s Housing and Buildings Committee for a vote. Whether NYC real estate players can manage to stop this bill from going all the way is an even bigger uncertainty, especially as a previous attempt from earlier this month to stifle tough rent regulations wasn’t so successful.