Listings Drop from StreetEasy After FARE Act

16 minutes read

The ban on “forced” broker fees has been live for only a few hours, but listings on StreetEasy have already dropped by more than 1,000.

The Fairness in Apartment Rental Expenses, or FARE, Act went into effect on Wednesday, after a federal court judge rejected the real estate industry’s bid to delay the law. Opponents of the measure have argued that it would lead to fewer public rental listings. The declining number of listings on StreetEasy may already be bearing that out.

As of 3 p.m. on Tuesday, 13,383 rental listings were posted on StreetEasy, a majority of which (9,136) were no-fee apartments. That was a little more than an hour after a judge dismissed the Real Estate Board of New York. Earlier, at 10:15 a.m., the number of rental listings was 13,515.

By 1:30 p.m. on Wednesday, the number of listings had dropped to 12,160.

The law requires landlords to cover the cost of commissions for rental brokers they hire. Under the FARE Act, a broker who publishes a listing is assumed to have been hired by the property’s owner. In its lawsuit challenging the law, the Real Estate Board of New York alleged that this provision violated the First Amendment because it discouraged a specific type of speech, or listings. The judge, however, on Wednesday dismissed this claim and others, while allowing REBNY’s allegation that the FARE Act interferes with existing contracts to move forward.

A spokesperson for StreetEasy, which supported the FARE Act, said wide fluctuations in listings are typical, even within a day. The company expects the decrease in listings to be temporary as agents and owners adjust to the new rules, though it did not specifically attribute Wednesday’s drop to the law’s passage.

In the morning on Wednesday, the number of listings floated between 12,115 and 12,160.

Listings on StreetEasy are now accompanied by an alert at the top of the page: “Under NYC law, you can’t be charged a broker fee if you didn’t hire a broker.” The option to filter for no-fee apartments has also disappeared from the website. Listings also specify that the asking rent is the “base rent,” meaning that it doesn’t include any fees. The site indicates that a breakdown of any additional fees should be detailed in the listing description.

Rent spikes

Aside from pulling listings, some brokers say they are adapting to the new law in other ways — namely, higher rents.

Compass’ Lauren Pepin said she’s in talks with property owners about raising the rent for apartments they’re preparing to list in the coming weeks. Last week, she and a landlord upped the price on a listing to test the market’s reaction, and the unit rented over the asking price following a bidding war.

“Because of the lack of inventory, which is really the problem, we’ll continue to see a lot of increases,” Pepin said.

The luxury market is more insulated from the impacts of the law. Instead, Pepin said tenants shopping for apartments on the lower end of the market — typically the ones required to pay broker commissions on behalf of landlords — will feel rent increases more acutely. It could even price them out of Manhattan.

“If you don’t make over six figures, where are you even renting in Manhattan?” Pepin said. “This is going to make it really tough.”

Compass’ James Finelli, who represents over 50 rental buildings in Manhattan, said he created separate pricing yesterday for his landlords. “If it’s a $5,000 one-bedroom and the tenant was paying the fee and now the landlord has to pay it, we’re just going to add that into the rent — the rent is going to go up $400 a month,” he said.

One of Finelli’s listings, a two-bedroom on the Upper East Side, increased its rent to $3,695 from $3,500, or 5 percent, on June 10 — the day before the bill went into effect.

Meanwhile, Compass’ Elina Brewer, who works primarily in Brooklyn, said 80 percent of her listings were already no-fee and won’t require any changes. For listings in popular areas like Soho, Nolita or Williamsburg, where landlords had been charging fees until Wednesday, Brewer said she’s raising prices — but had also made a push to get them rented before the FARE Act.

“Usually we list 45 days before the move-in date, but we started doing 60 or more days out,” she said. “Whenever we could collect the fee, we pushed on that.”

For one Long Island City rent-stabilized two-bedroom asking $3,600 per month, Brewer said she put it up last Friday and had it rented by Monday.

Mixed impact, but tough for rent-stabilized

It’s still not clear how much of the cost will ultimately pass through to tenants, be eaten by landlords or come from the broker fees themselves, but Brewer said she expects to see a more competitive landscape from brokerages trying to undercut each other’s pricing.

“I assume other brokers will try to do it for a lower fee,” she said, adding that she’s considering offering tiered pricing where a landlord might be able to pay less and not receive video content or as much advertising spend.

StreetEasy recently released a report finding that the FARE Act should decrease the average upfront cost for rentals that charge tenants a broker fee by 41.8 percent, from $12,942 to $7,537. The company has also pushed back on the notion that landlords will simply increase rents to make up for the law, asserting that rents are “primarily driven by market conditions, rather than solely by property managers’ costs.”

In the short term, the rental landscape will need to adjust. Apartment owners are figuring out whether to go without brokers and how to post listings without risking the appearance of hiring a broker.

REBNY is advising owners to only post listings to its RLS if they plan to pay the broker’s fee. Others should be entered as “Participant Only Network” listings, meaning they can only be viewed by a select group. The group is separately recommending that if owners post listings to their websites and social media, they attach disclaimers making clear that they have no relationship with a broker.

Ann Korchak, president of the Small Property Owners of New York, said rent-stabilized owners will be hit hard by the law because they cannot increase rents to cover broker commissions.

Korchak owns 20 units and has worked with the same broker for 40 years. She said she doesn’t have any vacancies at the moment and is unsure how she will handle marketing units in the future.

“I do feel for the brokers. though. They are an important part of the housing ecosystem,” she said. “Their livelihoods have just been turned upside down.”

She said stabilized owners often rely on market-rate units to cover shortfalls in operating expenses. For those barely staying afloat, she said, paying a broker fee will add to their mounting costs.

Bohemia Realty Group CEO Sarah Saltzberg said rent-stabilized landlords will need to pull public listings and rely on brokers bringing them clients “because they don’t have the margins to pay” a broker fee. “It will be about which agent you happen to call,” she said.

Brewer said the upside is that less serious brokers who can give the industry a bad name will likely be put out of business.

“A lot of them are seasonal, part-timers that don’t really translate into quality service, hence that’s the reputation we get a lot of times,” Brewer said. “Maybe people that actually make money in the right ways are the way to go.”

But the law isn’t a death knell for the city’s rental brokers, according to Nancy Packes, whose independent firm serves as a consultant and broker on rental projects. After the initial leasing phase, landlords with sizable buildings only rent a select number of apartments per year, most of which fall in the summer months when rents are typically higher.

That means, for most of the year, there isn’t enough activity to maintain a leasing staff, but the number of units is too high for any one landlord to list vacancies on their own without a broker involved.

“It’s not profitable to hire staff to do that,” Packes said. “There will always be rental brokers that are hired ad hoc.”