Navigating Change: NYC’s FARE Act and Its Real Estate Implications

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New York City’s rental market may be on the brink of a significant transformation as the City Council prepares to vote on the Fairness in Apartment Rentals Act (FARE Act). With a near veto-proof majority, the bill promises to shift the financial burden of broker fees from tenants to landlords, sparking both optimism and concern across the real estate sector.

Here’s what you need to know about the FARE Act, its potential impact on tenants, brokers, and landlords, and how it could reshape the city’s rental landscape.

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What Is the FARE Act?

The FARE Act seeks to address tenant affordability by redefining who pays rental broker fees. Key provisions include:

1. Shifting Broker Fee Responsibility
   • Brokers representing landlords will be paid by the hiring party (usually the landlord).
   • Tenants hiring brokers for assistance will remain responsible for their fees.
2. Upfront Transparency
   • Brokers and landlords must disclose all fees upfront.
   • Before lease signing, tenants must receive an itemized list of fees.
   • Non-compliance carries a minimum penalty of $1,000.
3. Enhanced Accountability
   • Greater transparency aims to reduce confusion and ensure fairness in transactions.

Why Now?

With the city’s rental market under strain from low vacancy rates and soaring costs, the FARE Act is designed to relieve financial pressure on tenants. Data shows that upfront costs in 2024 averaged 47.7% higher for renters paying broker fees compared to those who secured no-fee apartments. These costs often deter tenants from moving, even when financially prudent or necessary.

Councilmember Chi Ossé (D-Brooklyn), the bill’s sponsor, experienced firsthand the challenges of navigating a competitive rental market, where tenants often pay fees to brokers they never hired. “I’m not anti-broker,” Ossé clarified. “I’m anti-people being forced to pay for something they didn’t hire.”

Real Estate Industry Reaction

Supporters’ View

Tenant advocacy groups and some real estate professionals see the FARE Act as a step toward fairness:

• Lower Upfront Costs: By eliminating mandatory tenant fees, renters gain greater financial flexibility.
• Transparency Wins: Clear disclosure of fees ensures tenants understand their obligations.
• Streamlined Transactions: Accountability fosters smoother tenant-broker-landlord relationships.

Michael Corley, president of Corley Realty Group, supports the measure, stating:

“If brokers believe their service is valuable, landlords should pay for it since they benefit from the broker’s work.”

Opposition’s Perspective

Brokers and real estate organizations caution against unintended consequences:

• Potential Rent Increases: Landlords may pass broker costs onto tenants through higher monthly rents.
• Market Shifts: Brokers might restrict listings to private platforms, limiting public access.
• Reduced Service Quality: Brokers argue that diminished fees could lower the quality of services offered.

Stephanie Tiboris, a broker with 15 years of experience, warned:

“If fees are reduced, brokers won’t work as hard. This will ultimately harm both tenants and landlords.”

What Does This Mean for Landlords?

For landlords, the FARE Act introduces new financial considerations:

• Short-Term Costs: Landlords will need to absorb broker fees, which could strain small property owners.
• Long-Term Adjustments: Integrating these costs into rental pricing models may become standard.

Mayor Eric Adams highlighted the delicate balance:

“We need to balance affordability for renters without disproportionately harming mom-and-pop property owners.”

Historical Context and Future Outlook

The FARE Act builds on previous attempts to regulate broker fees:

• 2020: A Department of State ban on landlord-charged fees was overturned by courts.
• 2019: A proposed broker fee cap stalled amid fierce opposition.

If passed, the FARE Act could serve as a precedent for other cities grappling with similar affordability challenges. However, the real estate industry’s concerns underscore the importance of monitoring its implementation closely.

Navigating the Post-FARE Act Market

Whether you’re a landlord, tenant, or broker, preparation will be key to navigating potential changes:

• Landlords: Evaluate how to integrate broker fees into leasing strategies without alienating tenants.
• Tenants: Stay informed about your rights and explore no-fee listings.
• Brokers: Adapt to shifting fee structures and emphasize value-added services to remain competitive.

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The FARE Act represents a pivotal moment for NYC’s real estate market. While its goals of transparency and tenant affordability are laudable, the ripple effects will depend on how landlords, brokers, and tenants adapt. Collaboration and proactive planning will be essential to ensure this legislative change benefits all stakeholders.

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Disclaimer: This content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice.

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