the rent is too damn high

Should Landlords Cover Broker Fees?

Photo: ANDREA RENAULT/AFP via Getty Images

Anyone who has rented an apartment in New York City is familiar with the agonizing ritual of paying a broker thousands of dollars to get the place they want. It’s a particular form of New York madness; the city is one of the few places in the country where renters have to pay for a service provided to landlords.

For a short, blissful moment in 2020, it looked like newly passed rent laws would end this practice — until a judge struck that interpretation down. Then in June, City Councilmember Chi Ossé introduced a bill that would require whoever hired a broker to pay for their fees. Unsurprisingly, many in the real-estate industry have tried to block it, claiming that a system that’s in place everywhere else around the country would be devastating for tenants, brokers, and landlords. But Michael Corley, a broker at Corley Real Estate who has worked in residential leasing in central Brooklyn for over 20 years, believes that the bill will actually make the system work better for everyone. I reached out to Corley to talk about why and how he sees the bill playing out in practice.

Tell me how the broker-fee system works right now for you. 
When I entered the business, the practice had been normally referred to as a three-way, which is a tenant would pay the first month’s rent, one month’s security, and a fee to the broker for arranging the rental transaction on behalf of the landlord. But I instantly felt there’s something grossly wrong with this because landlords reach out to brokers to list their apartments for rent. And because this has been a practice that has permeated New York City for decades, tenants have accepted paying a fee to lease an apartment, when in theory it goes completely opposite to anything else done in real estate. For instance, if a property owner hires me to sell their property, they will compensate me directly.

Many of the landlords, because they have never truly understood the value a broker offers in the leasing transaction, they presume that it’s pretty much, I’m hiring you because I don’t want to deal with people. And that’s largely what it’s been reduced to because brokers never established their value in a property owner’s mind in New York City. They’ve allowed the owner to get away with not paying for representation.

So what does the relationship look like currently between a broker and a landlord?
It’s often informal, and very few brokers have ever asked for exclusives from landlords because of how transient the transaction is. They’re often open listings: A property owner will reach out to several brokers, and next thing you know, the same apartment is being offered for rent by three different agents on StreetEasy and they’re all asking different rents.* They have to type it in with a different headline or title to make you think it’s different. And as a consumer, you can’t figure out what in the world is going on.

And then I assume you as a broker might not end up getting paid at all for work you do if you don’t end up being the one renting the listing.

How do you think Chi Ossé’s bill, which would require landlords to pay brokers if they’re the ones hiring them, would change things for brokers?
It would practically change nothing because property owners with large portfolios of multifamily dwellings are already paying brokers fees. Large-property owners still do not want to deal with the general public to lease. And honestly, small-property owners probably do not want to deal with the general public either.

So you’re saying you think that if this bill passes, the argument that landlords will just stop hiring brokers won’t really play out. 
Yeah. This is something that multifamily property owners understand — the cost of brokers servicing the tenant is a fraction of the annual rent that they would net the owners in cash flow. A property owner doesn’t want a vacant unit. What they’re concerned about is smaller property owners not hiring brokers. And I tell everybody that’s absolutely untrue. Most people that own townhouses work. When are they gonna make themselves available to answer inquiries and show their vacant apartments? If they want to, let ’em knock themselves out. This is true of every DIY project — if you have no experience, good luck. What a property owner of a two-family brownstone really would be paying for is the prequalification screenings, property demonstrations, leasing transactions, and making sure the transaction complies with all legal regulation in the state so that they are assured that the tenant occupying the residence is someone that would not represent a future liability. To this day, I have a steady group of landlords that always retain me and have always paid me.

What about the idea that rents will go up because landlords will just incorporate the broker fee into them?
To be honest with you, it’s true; in the short term, once this is finalized, landlords will try and offset the cost of the fee onto the tenant in the form of a rent increase. But it’s not exponential, or any more they would charge if their taxes or insurance or heating costs went up. You can only charge what the public will pay. There is a supply-and-demand factor associated with it.

If the landlord did incorporate the fee into the rent, wouldn’t those increases then become permanent?
It’ll probably stay in, but that’s what’s being done right now anyways. No-fee apartments have done that already. Large multifamily-property owners have already made the broker fees they pay part of rent cost, so it’s already an industry practice. We’re not inventing anything other than transparency at this point.

And this is just market-rate apartments we’re talking about, right? Because some of the more egregious broker fees I’ve seen are on rent-stabilized units, and in those cases, landlords wouldn’t be able to raise the rents at all, even if they did have to pay the broker. 

I had to pay a one-month broker fee for my current apartment, and the broker didn’t even show up to the listing — I was instructed to buzz any random apartment to get someone to let me into the building. It seems like under the current system, there’s a lot of brokers that are sort of doing the bare minimum.
They’re not even doing that. That’s the horrible part of it. They work out arrangements, especially if it’s a large rental building, like, “Oh, hey, maintenance guy, can I send people to you? I’ll give you $500 once the lease is done.”

I hold all the power. You probably love your apartment, you’re probably happy that you leased it. You understood that the cost of it meant that you had to pay somebody that didn’t provide anything to you, right? But in the end, you didn’t have any other alternatives. This is the bill that forces the alternatives.

So you think this bill would offer better-quality services for tenants and landlords, and more stability for brokers. 
Because the owner would be paying for it, the owner now has more power to make the broker accountable and to fill the vacancy. When you are exclusively retained to represent a client, you have a duty to them. But when they didn’t exclusively retain you, and it’s an open listing, the broker has no obligation to tell the landlord everything. Right now, I know brokers that could care less about the landlord and just wanna jam anyone in.

I think that part of this legislation must include that public-facing real-estate portals that list New York City rentals must provide full disclosure for the fees being charged. Right now, the way it works is StreetEasy says “no fee.” That’s an incomplete statement because it suggests that you may not be paying a fee, but the way it operates now, the rent is being padded to make you pay the fee

It seems like in every other industry — and even within other areas of real estate — it’s a standard practice that whoever’s hiring for a service pays for it. Why do you think it’s been so normalized otherwise in the rental market here?
One, in order to incentivize brokers to lease apartments to tenants who have no income or no employment history, city agencies will give an enormous amount of money — 15 percent — to brokers to do that. That fortifies a practice that’s already been instituted. But it’s a very unregulated industry in New York. The five boroughs operate distinctly different from the rest of the state. If you go upstate, I’m certain that the homeowners are paying brokers to manage their houses and rent them out. It’s only because of the density and the implied scarcity here that the relationship has been manipulated the way it has, where more can be extracted from a renter than ever could be from an owner.

What’s the reaction you’ve been hearing from other brokers about this legislation?
Well, I’m gonna be frank with you, my profession is aspirational. No one ever grew up and said, “I want to be a real-estate broker.” People find their way to this profession because they think it’s the road to lots of money for just being in the right place at the right time. So my peers in the New York market have always operated with some level of privilege that is to some extent gross, and without any real business acumen on how to establish their real true value in the mind of the landlords that they want to be hired by. And so they’re upset that they cannot continue the grift that they’ve operated for decades. They don’t know the words to use to help a landlord feel confident that they’re worth what they’re asking.

So it’s about valuing your own labor as a broker. 
Exactly, and that’s why it was always easier to put the renter between the rock and the hard place. You don’t have any choice. I stand between you and this apartment. You’re gonna pay the toll to get in. And that’s pretty messed up. We can’t keep doing what we’re doing — we’re just driving people out of the city.

This interview has been edited and condensed for clarity.

*Updated 8/22: According to StreetEasy, its policy requires landlords to choose one broker to represent their building’s listings. It also requires a “full address and accurate unit numbers for a listing to be posted” and it has “a team in place to verify that all of the information is accurate.”

Should Landlords Cover Broker Fees?