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Should Boston ban broker fees? What New York did and the pros and cons.

News Renting
A view of downtown Boston from the Evelyn Moakley Bridge, Thursday, May 19, 2016, in Boston. (AP Photo/Elise Amendola)
Broker fees don’t exist in many US cities, but they’re common in Boston. Elise Amendola / AP Photo

On the heels of New York State’s battle over broker fees, Mayor Martin J. Walsh of Boston is forming a group to look into the practice.

Along with the first and last month’s rent, security deposit, and the cost of buying and installing new locks, Boston renters may also have to pay a broker fee. The broker has to tell a renter, in writing, how much the fee is, how to pay it, and whether it applies only if you enter into an agreement on a rental, according to the city.

Brokers show an apartment to prospective tenants on behalf of the landlord, or are hired by the prospective tenants to find them a home, and the tenant typically pays the broker fee, according to The Wall Street Journal.

Eliminating the fee would be welcome news to renters, given that the average rent in Greater Boston for the last quarter of 2019 was $2,349.

“I am proud to pull together this working group to move us forward in determining how broker fees are impacting our renters and our housing market in Boston,” Walsh said in a statement announcing his working group. “This is another tool we are putting forward to tackle the underlying challenges of housing affordability in Boston.”

Here’s a look at broker fees, what New York did, and the reasons for and against them:

What New York did

Broker fees don’t exist in many US cities, but they’re common in New York and Boston. Here, a broker fee is usually about the cost of a month’s rent, according to the Globe. In New York, it can amount to as much as 15 percent of a year’s rent, according to Time.

Eliminating broker fees was actually part of sweeping changes to rental housing laws the New York Legislature passed last year, according to The Wall Street Journal. The state imposed the ban on Jan. 31.

The Real Estate Board of New York filed suit on Monday, and a judge temporarily blocked the ban.

“We look forward to ultimately resolving this matter in Court in the weeks ahead,” James Whelan, president of the Real Estate Board of New York, and Jennifer Stevenson, president of the New York State Association of Realtors, said in a joint statement. “Meanwhile, we appreciate all of our members’ support and vigilance during this period of upheaval and confusion.”

What’s allowed under the New York regulation

The new rule, if reinstated, would not completely eliminate the fees. Landlords would shoulder the cost, unless the tenants hired the broker to find them the rental.

Dropping broker fees comes after New York State’s Housing Stability and Tenant Protection Act of 2019. Among other provisions, the new regulations eliminated both the “vacancy bonus,” which allowed a landlord to raise the rent up to 20 percent each time an apartment was vacated, and the “longevity bonus,” which made it so landlords could collect 0.6 percent more rent from tenants who have lived in an apartment for eight years or longer.

Why?

Broker fees make it more difficult for people, especially those in lower income brackets, to find an apartment, Judith Goldliner, who leads the civil law reform unit at the Legal Aid Society, told Time.

“It’s very difficult for low-income people to pay broker fees, and it’s one of the ways that keeps our clients from being able to move to better places,” Goldliner said. “It’s a huge amount of money even if you’re not really low income, like people starting out in New York.”

Mayor Bill de Blasio agreed that the ban is about affordability.

“If we don’t take these kinds of aggressive actions quickly, the place is not going to be livable for working-class and middle-class people,” he reportedly told the publication.

Arguments for and against

In an  interview with The Boston Globe, State Rep. Mike Connolly, Democrat of Cambridge, called New York’s ban a “welcome development.”

“Many of us don’t have thousands of dollars in cash just laying around,” Connolly told the newspaper. “This could really make it easier for people to move into that next apartment.”

But not paying the broker fee could result in higher rent, some say. Reggie Thomas, senior vice president of government affairs for the Real Estate Board of New York, told CNN that the ban’s effects will be “devastating.”

“If enforced, this guidance would result in higher prices for New Yorkers. as building owners include commissions into rents and dramatically cut the incomes of tens of thousands of agents who provide a valued service in helping people find their new homes,” he told the news station.

His Boston counterparts agreed.

“That’s basically their income,” Greg Vasil, CEO of the Greater Boston Real Estate Board, told the Globe. “You’d have a whole lot of people who’d probably lose their jobs.”

In New York, brokers were left scrambling. Diane Ramriez, who heads Halstead Property, said the company isn’t collecting broker fees until it learns more about applying the new rule, according to The Wall Street Journal. “I found it very confusing.”

Another argument against the ban concerns smaller businesses.

“There’s lots of little firms, and I don’t know how they’re going to do business,” Donna Olshan, who founded Olshan Properties, told the WSJ. “A lot of these brokers don’t make much more than teachers.”


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