A recently proposed bill that would shift broker fees away from tenants has ignited a divide within Midtown’s real estate sector.

According to the Real Estate Board of New York (REBNY), broker fees in Midtown typically range from 12% to 15% of the annual rent, with some fees reaching $8,000 to $10,000 per lease. The Fairness in Apartment Rental Expenses (FARE) Act seeks to reduce upfront costs for renters, which some residents say is long overdue.

“I had no choice but to pay nearly $9,000 in broker fees for an apartment I found online,” said Cristina Garcia, a banking analyst who recently moved to Murray Hill from Austin, Texas. “I would 100% support the FARE Act. That fee is ridiculous (especially) for a person right outside of college.”

Garcia described how she was pressured into signing an agreement before even seeing real photos of the apartment.

“The broker told me I had to sign a form before he could send me more information,” she explained. “I didn’t read it at all, I just signed it. That’s when I realized I was bound to him and had no other options.”

Many Midtown residents are already under financial strain, with 36.4% of District 5 households spending 35% or more of their income on rent, according to the NYC Planning Department. 

Historically, federal guidelines for affordability were set a 30% of household income, with the aim of preventing households from becoming “rent-burdened.” This means that if housing costs exceed 30%, other financial needs, such as healthcare or savings, can suffer. However, studies have shown that in cities like New York, where rents are high, adhering to the 30-35% rule is often unrealistic for many middle- and low-income residents.

This high rent burden amplifies the need for reform, as tenants struggle with substantial broker fees on top of steep living costs.

But Midtown broker Nathan Gulkar argued that the legislation would likely drive rents higher, as landlords would pass the additional costs onto tenants rather than absorbing them, undermining the bill’s goal of easing tenant burdens. “It all comes down to supply and demand,” he said.

REBNY claims that landlords can raise rents if the demand for apartments remains high and the supply is limited because people will still compete for the available units. Even with legislation to regulate fees, landlords may raise rents to cover their costs if demand remains high and supply is limited, making it difficult for tenants to see any real relief.

The bill’s sponsor Councilmember Chi Ossé, disagrees. “Rent is determined by market forces, not landlords,” he said in his opening statement at the hearing in June. “If a landlord could magically raise your rent by several thousands of dollars tomorrow, he would have done so yesterday.”

REBNY’s fourth-quarter report for 2023 shows a strong increase in optimism among residential brokers. The data reveals that their level of confidence in the current housing market nearly doubled, while their levels of expectations for the future surged more than fourfold, reaching the highest level since 2021.

“Even if broker fees shift to landlords, the demand for apartments in Midtown will keep things stable,” Gulkar said.

In contrast, the commercial real estate sector remains wary. Robin Abrams, Vice Chairman at Compass Real Estate, expressed concerns that the legislation could complicate the market, which is already struggling with high office vacancy rates and elevated borrowing costs.

“I hope it doesn’t trickle down to commercial… it just creates more paperwork,” Abrams said. “We’ve operated for a long time with a clear understanding of roles and fees, but this could introduce new challenges.”

But Garcia said “it was absolutely ridiculous” to pay a middleman for “doing absolutely nothing.” Her experience raises concerns about the quality of service provided by residential brokers, who are blamed for charging exorbitant fees while offering minimal support.

Despite the ongoing debate, only 7% of rentals in Midtown offered concessions, incentives or benefits that landlords offer to tenants or buyers to make a deal more attractive–down from 9.4% a year ago, according to StreetEasy. This decline in concessions suggests that demand remains strong, with landlords maintaining rental prices rather than offering discounts.

Ossé first introduced the bill last June, but it didn’t progress. Reintroduced this year, it now has 33 city council supporters, up from 30 before. After a social media push, the bill was debated in a six-and-a-half-hour hearing on June 12. With 33 sponsors, it’s one vote short of a veto-proof majority, but it’s still unclear if Council Speaker Adrienne Adams will bring it to a vote.

Ossé says there’s no time to waste.

“The average moving cost for New Yorkers and new people living in New York City is now over $10,000,” said Ossé. “This is a burden very few people and families can bear.”